Shares of specialty apparel retailer Gap (GPS) - Get Report dropped on Friday morning after the company offered a weak profit outlook for fiscal year 2016. Meanwhile, shares of department store retailer J.C. Penney (JCP) - Get Report are higher in morning trading after the company reported better than expected results for the fourth quarter.

GAP'S WEAK OUTLOOK: After the market close on Thursday, Gap reported fourth quarter adjusted earning per share of 57c on revenue of $4.4B, in line with analysts' consensus estimates of 57c and $4.46B, respectively, and said its EPS and revenue for the year were hurt by a strong U.S. dollar. Same-store sales for the quarter were down 7%, versus being up 2% a year ago. For fiscal year 2015, Gap said Gap Global SSS were down 6%, Banana Republic Global SSS were down 10% and Old Navy Global SSS were flat. The retailer, which announced a new $1B share buyback authorization and said it intends to maintain its annual dividend at 92c per share in 2016, forecast FY16 EPS of $2.20-$2.25, well below analysts' estimates of $2.42. On its earnings conference call, Gap CEO Art Peck said he will "take [his] time" to name a new president for Old Navy; former Old Navy president Stefan Larsson stepped down last year to become the new CEO of Ralph Lauren (RL), and soon after Banana Republic brand creative director Marissa Webb stepped down. Peck said that his team "has a great deal of urgency" and that he knows "what these brands are capable at their best." Peck, who noted that 2016 share repurchases are likely to be lower than average, said that Gap is "buying what's working, rather than guessing what's going to work."

CITRON SHORT: Andrew Left of Citron Research said in an interview with Bloomberg Television yesterday that he is shorting Gap. Left said he would not be surprised to see Gap's stock to be trading below $20 per share within two months. Oppenheimer analyst Anna Andreeva told CNBC this morning that she is "worried about the relevancy" of the Gap brand.

PENNEY BEATS: Meanwhile, J.C. Penney this morning reported Q4 adjusted EPS of 39c on revenue of $4B, beating analysts' estimates for 23c and $3.99B, respectively. The retailer reported SSS for the quarter up 4.1% and said it expects FY16 adjusted EPS "to be positive," with same-store sales up 3%-4%. CEO Marvin Ellison commented that there is "significant work" to be done, but that the company is "on the right path to achieving our long-term financial objectives." Ellison forecast FY16 EBITDA of $1B and a 40-60 basis point increase in gross margin and said free cash flow should improve vs. fiscal year 2015. Ellison said on the earnings conference call that there is a "clear line of sight" to the $1.2B EBITDA goal in 2017. Ellison said it is "evident" that the company gained market share throughout 2015 and a "challenging" Q4.

PENNEY TARGET RAISED: Piper Jaffray analyst Neely Tamminga reiterated J.C. Penney as a top pick and raised her price target on shares to $20 from $18 and said a turnaround is unfolding at the retailer while analyst sentiment remains negative.

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OTHERS TO WATCH: Gap's peers include Urban Outfitters (URBN) - Get Report , American Eagle (AEO) - Get Report and Abercrombie & Fitch (ANF) - Get Report . Department store retailers include Macy's (M) - Get Report , which Kohl's (KSS) - Get Report , Nordstrom (JWN) - Get Report , Sears (SHLD) and Bon-Ton (BONT) . The Fly notes that Macy's and Kohl's reported better than expected Q4 earnings this week, though Kohl's provided FY16 guidance was that below expectations and said it will close 18 stores this year. Nordstrom, which reported last week, and Sears, which reported this week, both posted fourth quarter results that were below expectations.

PRICE ACTION: In morning trading, Gap fell nearly 5% to $26.34 while J.C. Penney jumped 12% to $9.37.

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