Updated at 11:39 am EST
Gap Inc. (GPS) - Get Free Report shares plunged lower in pre-market trading after the clothing retailer slashed its first quarter sales forecast amid the twin pressures of rising input costs and supply chain disruptions.
The group also said Nancy Green, who heads the Old Navy brand division, would be leaving the company this week, with CEO Sonia Syngal assuming control until a permanent replacement is found.
Gap said it now sees first quarter sales growing by "low to mid-teens year-over-year declines", in percentage terms,, down from a March forecast of mid- to high-single-digit declines. The group made no reference to its full-year outlook, which includes adjusted earnings in the region of $1.85 to $2.05 per share
"As we look to seize Old Navy’s potential, particularly amidst the macro-economic dynamics facing our industry, we believe now is the right time to bring in a new leader with the operational rigor and creative vision to execute on the brand’s unique value proposition," Syngal said.
Gap shares were marked 18% lower in early Friday trading to change hands at $11.74 each, a move that would extend the stock's year-to-date decline to around 36.25%.
Supply chain disruptions and surging inflation have clipped retail sales hard over the first three months of the year, with March figures from the Commerce Department last week showing another pullback in discretionary spending.
March retail sales rose 0.5% from the previous month to a collective $665.7 billion, the Commerce Department said, just shy of the Street consensus forecast of a 0.6% advance. The February total was revised firmly to a gain of 0.8%, the Commerce Department report showed, from the original estimate of a 0.3% advance.
U.S. inflation, meanwhile, accelerated to the fastest pace in four decades in March, thanks in part to record high gasoline prices and a surge in global oil prices.
"With shares down meaningfully post-market, it remains to be seen how far management opts to reset the (full year earnings) guide, but with a cut so soon to numbers that seemed so high, the burden of proof remains on management to execute," said BMO Capital Markets analyst Simeon Siegel, who caries a market-perform rating with a newly-reduced $13 price target on the stock.
"This meaningful drop, along with a likely inflated inventory balance, is beginning to weigh meaningfully on GPS' cash balance, likely hampering buybacks and potentially a capex recalibration," he added.