Gap Q2 earnings: ‘the new CEO has a lot of work to do’

Gap Inc (NYSE: GPS) inched up in extended hours even though the retailer came in shy of sales estimates in its fiscal second quarter.

Morningstar analyst reacts to Gap’s earnings

The clothing and accessories company has been taking measures to streamline its business that are now showing “signs of progress”, as per CEO Richard Dickson.

David Swartz – a Morningstar analyst, though, doesn’t seem to share his optimism. Speaking with Yahoo Finance this evening, he said:

Note that Richard Dickson took the helm only in July.

Gap’s guidance wasn’t upbeat either

The after-hours price action is particularly interesting considering the guidance wasn’t encouraging either.

Gap now forecasts its sales to be down more than 10% in its current financial quarter versus analysts at about a 7.0% decline only. According to David Swartz:

The retailer lowered its outlook for the full year as well.

Notable figures in Gap Q2 earnings release

• Earned $117 million that translates to 32 cents per share
• Had $49 million in net loss last year (13 cents a share)
• Adjusted EPS printed at 34 cents as per the press release
• Sales sunk 8.0% on a year-over-year basis to $3.55 billion
• Consensus was 9 cents a share on $3.58 billion revenue
• Same-store sales also slipped 6.0% in the second quarter

The Morningstar analyst attributed the beat on adjusted per-share earnings primarily to cost cuts.

Old Navy and Athleta remained weak

Old Navy continued to disappoint in the recently concluded quarter – down 6.0% versus last year. Gap also saw a 7.0% hit to sales at Athleta as well. Morningstar’s Swartz added:

Earlier this year, Gap sold its business in China to Baozun. That segment brought in $70 million last year in the third quarter.

Wall Street currently has a consensus “hold” rating on Gap stock that is currently down more than 35% versus its year-to-date high.