In the wake of Gap Inc (NYSE:GPS)'s latest earnings report, Bank of America analysts have expressed concerns about the retail giant's persistent sales decline in a challenging macroeconomic environment.
Earlier this week Gap Inc (NYSE:GPS) reported a disheartening 8% drop in sales to $3.5 billion for the second quarter, falling towards the lower end of the previously forecasted guidance.
Comparable sales also experienced a decline of 6%, with May registering as the weakest performing month.
The third quarter of 2023 should see things get worse before getting better, analysts warned.
Despite the retailer’s “prudent” inventory management, Bank of America remains cautious about the company's ability to stage a substantial earnings recovery.
But the underlying result of that inventory management has led to more optimism for analysts, who raised their price objective on Gap stock to $9 from $8.50.
“A downside risk to our PO is if revenue growth decelerates or margins drop. Gap and Old Navy must generate brand excitement and loyalty in order to move margins higher from here,” analysts noted.
“Upside risks to our PO are stronger sales at core brands, and stronger margins from corporate actions.”
Bank of America also raised its fiscal year 2023 and 2024 estimates by 17% and 13% respectively, reflecting the second-quarter SG&A beat.
Gap shares were up around 5.5% on Friday at $10.06 in New York.
Contact Angela at angela@proactiveinvestors.com
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