Shares of Gap Fall As No Recovery Seen in Flagship Brand

Gap Inc. shares were down by 8% on Friday before the opening bell a day after the namesake brand of the company posted a bigger than had been expected fall in comparable sales, which raised concerns related to the turnaround plan of the unit.

Gap typically has large discounts to attract shoppers to purchase designs from the previous season, but the company lowered its promotions as it placed a priority on profit margins rather than sales in its latest quarter reported, leading to the disappointing results at its Gap brand.

Analysts say the Gap brand will weigh on the gross margins of the company during the current quarter while it works through inventory issues.

One analyst said that she would hold off in purchasing the stock until Gap brand could show comparable sales that were consistently positive.

Sales from Gap branded locations open for one year or more were down 5% during the fiscal second quarter while analysts were expecting a drop of 2.55%.

Another analyst noted positives in the strong performance by the other important brands of the company Athleta and Old Navy.

One analyst said the company should be renamed Old Navy and that the Gap brand should not matter if Old Navy remains strong and growth continues at Athleta.

The Gap brand released the worst sales miss for same stores in the last three quarters. Analysts are expecting sales to fall during the current quarter, with estimates averaging a drop of approximately 2.6%.

One industry analyst on Wall Street said that Gap would continue losing market share to off price and fast fashion peers and that the company did not have any clear execution on a plan to stop losses in its key segments.

Retailers have struggled over the last three years as consumers changed their shopping habits which in turn lowered foot traffic in malls and increased overall sales online.