The Gap’s Earnings Were So Bad, the Stock is Rallying

This company is so bad, it’s good. Earnings are down, missing earnings expectations by large mountain ranges. Margins are horrid. Universally, their fashion choices are an abomination. Yet, in the after hours, thus far, shares are rising by 3.6%. All of this can change, naturally.  But it’s worth noting that the price action, in the face of abysmal news, is exceedingly bullish.

Maybe people are happy to see 75 wretched stores closing?

Bottoms are forged in the pits of hell, not the harems in heaven (extra 72 virgins).

Via Briefing.com

• Reports Q1 (Apr) earnings of $0.32 per share, in-line with the Capital IQ Consensus of $0.32; revenues fell 6.0% year/year to $3.44 bln vs the $3.54 bln Capital IQ Consensus.
• Warned on May 6: Preannounced EPS $0.31-0.32 vs. $0.45 consensus; rev $3.44 bln vs. 3.54 bln consensus; comps -5% (-3% Gap, -11% Banana Republic, -6% Old Navy).
• Co is not reaffirming its earnings per share guidance for fiscal year 2016 ($2.20-2.25). The company noted that the current consensus earnings per share estimate of $1.92 falls within a reasonable range of potential outcomes, excluding restructuring impacts from its store closure and streamlining measures. However, the company also noted that trends in the apparel retail environment would need to improve from the first quarter of fiscal year 2016 in order to achieve this estimate.
• The company will report May sales on June 2, 2016.
• As part of Gap Inc.’s continued commitment to better position the company for long-term growth, the co has announced the following measures to better align talent and financial resources against its most important priorities:
  • Focus on geographies with the greatest potential. The company remains committed to growing its brands in regions where it has a structural advantage and the greatest opportunity to gain market share. As part of this effort, Old Navy will strategically shift its focus to markets most favorable to the brand’s growth, resulting in the closure of its fleet of 53 stores in Japan in fiscal 2016. Old Navy’s near-term growth ambitions will be anchored in North America, including its most recent debut of company-operated stores in Mexico, as well as China and its global franchise operations. Additionally, the company expects to close select dilutive Banana Republic stores, primarily internationally, in fiscal year 2016. In total, the company expects to close about 75 stores related to these measures.
  • Streamline its operating model. The company will take steps to create a more efficient global brand structure, enabling its portfolio of brands to more fully leverage its scale advantage and move even faster in anticipating and responding to the ever-changing environment and needs of customers.
• The company estimates that together these measures will result in annualized pre-tax savings of about $275 million and operating margin improvement of nearly 2 percentage points. The company estimates an annualized sales loss of about $250 million associated with the store closures and expects to recognize restructuring costs in fiscal 2016 of about $300 million pre-tax