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While Citi sees the company’s first quarter sales results, after the market close on May 25, below consensus and believes second quarter trends are running below consensus, they see the risk/reward for the stock as more balanced.
“Sentiment is extremely negative,” wrote the analysts. “Old Navy’s consumer is likely feeling the recent pressures seen throughout retail, and we believe the once darling Athleta brand is struggling with brand-specific issues that likely won’t get fixed in F23.”
“However, tailwinds in GM (freight, lean inventory, lapping promos) and cost-cutting opportunities should limit EPS downside relative to our new F23E. We are below cons on 2Q sales (-6% vs cons -5%) but above on EPS ($0.21 vs cons $0.18),” he added.
They also stated that with the CEO seat still empty after almost a year, uncertainty is high.
“However, shares are trading at 3-year lows and an F23E EV/EBITDA multiple of 4.0x, accounting for significant uncertainty, and suggesting a more balanced risk/reward,” the analysts concluded.
