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Earnings Results: Gap stock shoots higher after retail chain lost less than expected in holidays, predicts growth in 2022

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The Gap Inc. lost less money than expected in the holiday season and surprisingly beat analysts’ expectations with executives’ forecast for 2022, driving shares more than 15% higher in late trading Thursday.

Gap
GPS,
-2.20%

reported a fourth-quarter loss of $16 million, or 4 cents a share, on sales of $4.53 billion, up from $4.42 billion a year ago in the holiday season. After adjusting for charges related to changes in its European businesses, the parent company of retail chains including Old Navy and Banana Republic reported a loss of 2 cents a share, after adjusted earnings of 61 cents a share a year prior.

Analysts on average were expecting an adjusted loss of 13 cents a share on sales of $4.49 billion, after Gap’s holiday forecast for losses led to a huge decline in its stock. Shares moved higher than $16.50 in after-hours trading Wednesday immediately after the release of the results, after closing with a 2.3% loss in the regular session.

Executives’ forecast for the current year calls for GAAP earnings of $1.95 to $2.15 a share, with international initiatives causing a reduction in adjusted earnings to $1.85 to $2.05 a share. Sales are expected to grow in the “low single-digit range” from the 2021 total of $16.67 billion. Analysts on average were expecting annual adjusted earnings of $1.76 a share on sales of $16.9 billion, and many were pessimistic that Gap would meet or beat those targets.

“We expect GPS provides EPS guidance below the Street’s $1.76 forecast,” UBS analysts wrote earlier this week in previewing Gap’s earnings. “We think the Street
is underestimating the impact of continued supply chain costs into the first half of FY22 as well as some degree of more normalized promotions in FY22.”

Gap executives did say that they expect supply-chain issues to continue weighing on results in the first half of the year, but for the second half to be a part of a long-awaited turnaround for the retailer.

“After two years of restructuring, including divesting smaller non-strategic brands, transitioning our European market to an asset-light partnership model and shedding underperforming North American stores, our core business is strong and we are poised for balanced growth across our four billion-dollar lifestyle brands,” Chief Executive Sonia Syngal said in a statement. “As our teams address near-term disruption from the acute headwinds that muted our fourth quarter performance, we are confident in our ability to execute against our long-term strategy.”

Gap shares have fallen 44.7% in the past year, as the S&P 500 index
SPX,
-0.53%

gained 14.8%. Only 3 of 23 analysts tracking the company consider the stock a “buy,” with the majority, 18 of the 23, rating shares a “hold” as of Thursday afternoon.

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