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Investing.com – Gap stock (NYSE:GPS) plunged 7.8% Tuesday after Morgan Stanley (NYSE:MS) MS downgraded it to underweight with a target of $14, still 17% lower than its prevailing price of $16.85.
Analyst Kimberly Greenberger earlier rated the stock equal weight with a target of $20. According to reports, she sees promotions and discounts hurting margins, expecting Gap and other mall-based specialty retailers to revert to the declining path of pre-pandemic times. She believes the margin erosion could last several years.
Greenberger’s caution comes after the pandemic-fueled consumption drove retailers’ operating margins to a record.
Excluding today’s fall, Gap shares have lost more than 45% of their value since the start of June.
Gap is home to well-known brands like Old Navy, Banana Republic and Athleta. For the third quarter ended Oct. 30, net sales were down 1% at $3.9 billion compared to 2019 levels. The company blamed supply chain disruptions for the muted sales.
Third-quarter adjusted operating margin of 4.3% decreased 320 basis points compared to 2019. That forced it to significantly lower its annual outlook in November, less than three months after raising it.
The company expects its 2021 diluted earnings per share to come in between 45 cents and 60 cents, compared to the $1.90 to $2.05 range it gave in August. Estimate for net sales was cut to about 20% from the near 30% growth seen earlier on a year-on-year basis. Operating margin was seen down by 2.5 percentage points from the previous estimate to about 4.5% for the year.
