Photographer: Patrick T. Fallon/Bloomberg

Gap Shares Plunge After Comeback Falters, Inventory Piles Up

Updated on
  • March sales miss analysts' estimates as traffic remains slow
  • CEO Art Peck has promised a turnaround starting this season

Gap Inc. shares fell as much as 12 percent after the struggling apparel chain posted disappointing sales and said that inventory is piling up at stores, sparking concern that its comeback effort has stalled.

Same-store sales fell 6 percent last month, the San Francisco-based company said on Thursday. Analysts had projected a 5 percent decline, according to Retail Metrics. Gap’s Banana Republic division performed especially badly, with same-store sales plunging 14 percent.

“The company did not get the traffic build it expected in the week leading up to Easter,” Paul Lejuez, an analyst at Citigroup Inc., said in a report.

The sluggish sales mean the company is entering April with more inventory than planned. That will squeeze profit margins because Gap will have to discount merchandise to clear out the excess apparel. Chief Executive Officer Art Peck has said the company will begin showing signs of a comeback this spring, but the latest results threaten to set back its progress.

“While March proved challenging, we remain focused on taking the necessary steps to improve results across the portfolio throughout the year,” Chief Financial Officer Sabrina Simmons said in Thursday’s statement.

Rally Quashed

The stock fell as low as $24.42 in New York, its biggest intraday decline in three months. Gap had been up 12 percent this year through Thursday’s close, with investors betting that a turnaround is under way.

Comparable-store sales at Gap-branded locations fell 3 percent in March, worse than the 0.8 percent decline analysts had estimated. They dropped 6 percent at the Old Navy chain, nearly in line with projections.

Gap could have a difficult time weaning customers off discounts, said Roxanne Meyer, an analyst at MKM Partners LLC. The company also may continue to struggle getting enough shoppers in the door, she said in a report.

“Traffic could continue to be a headwind,” she said.