Gap Inc (GPS) - Get Free Report shares plunged lower in pre-market trading after the struggling apparel retailer cut its full-year profit forecast following a disappointing third quarter earnings report marred by supply chain disruptions and rising input costs.
Gap said it would take a $650 million hit to current-quarter sales as a result of factory closures in Vietnam and rising freight prices, with $450 million in added air freight costs, and forecast full-year revenue growth that will be around 20% higher than 2020 levels, a 10 percentage point reduction from its prior forecast.
Adjusted profits, Gap said, would come in between $1.25 and $1.40 per share, a far cry from its August forecast of between $2.10 and $2.25 per share.
For the three months ending in October, Gap posted adjusted earnings of 27 cents per share -- missing Street estimates by 13 cents -- on revenues of $3.94 billion.
“While we entered the third quarter with growing momentum, acute supply chain headwinds affected our ability to fully meet strong customer demand," said CEO Sonia Synga. "Still, we made an intentional investment in building enduring customer loyalty with accelerated use of air freight to serve them this holiday, choosing long-term growth opportunity over near-term impact to profitability.”
Gap shares were marked 22.3% higher in early trading to change hands at $18.16 each, a move that would wipe out the stock's entire gain for the year.
"We are concerned about demand signals in 3Q, or that significant new programs like Bodequality missed in the quarter," said Credit Suisse analyst Michael Binetti, who lowered his price target on the retailer by $11, to $20 a share, following last night's earnings report.
"We think efforts to normalize inventory and supply chain will likely last into 2022," he added. "Coupled with Gap lapping tough comparisons in 2022, including US stimulus, child tax credits, and pent-up demand for the reopening make it difficult to have high conviction on where 2022 will shake out, let alone 2023."