Gap Inc. (NYSE: GPS) reported its fiscal fourth-quarter financial results after the markets closed on Thursday. Earnings were not bad in this report, but guidance kept the stock from advancing. As a result, some analysts issued calls about this retail giant.
The company said it had $0.57 in earnings per share (EPS) on $4.39 billion in revenue. Thomson Reuters consensus estimates called for EPS of $0.57 and $4.46 billion in revenue. The same period from the previous year had $0.75 in EPS on revenue of $4.71 billion.
In terms of fiscal 2016 guidance, the company expects to have EPS in the range of $2.20 to $2.25, and an operating margin of 9.5%. The consensus estimates for the full year call for $2.42 in EPS on $15.86 billion in revenue.
Free cash flow for the fourth quarter totaled $870 million. Also on the books, the company ended fiscal year 2015 with $1.4 billion in cash and cash equivalents, compared to $1.5 billion at the end of the previous year.
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Comparable sales fell 7% in this quarter, compared to an increase of 2% in the fourth quarter of last year. In terms of its segment comparable sales results the company had:
- Gap Global had -6% comparable sales versus -5% in the previous year.
- Banana Republic Global had -10% comparable sales.
- Old Navy Global comparable sales were flat compared to a positive 5% from last year.
Merrill Lynch believes that the outlook from this report disappoints. The firm expects deflation to remain a headwind, so Merrill Lynch reiterated an Underperform and $21 price objective. It detailed in its report:
In 2015 the company spent $1.0 billion on buybacks, but we expect a material decline in share repurchases in 2016. Management indicated that it will prioritize debt repayment as a use of cash and the pace of buybacks will decline significantly. We are modeling free cash flow of $839 million, with $377 million cash funding the unchanged $0.92 annual dividend, $400 million used to repay the term loan, and $400 million for share repurchase. Management reaffirmed goals to keep $1.0 to $1.2 billion of cash on hand.
A few other analysts weighed in on Gap:
- Jefferies has a Buy rating and lowered its price target to $34 from $42.
- Wedbush has a Neutral rating and raised its price target to $26 from $25.
- Goldman Sachs has a Neutral rating and lowered its price target from $25 to $24.
- Baird has a Neutral rating and raised the price target to $27 from $26.
- Credit Suisse has an Underperform rating and lowered its price target to $27 from $30.
- S&P Capital IQ maintained a Hold rating with a price target to $28.
Shares of Gap ended last week at $27.23, with a consensus analyst price target of $26.41 and a 52-week trading range of $21.57 to $43.90.
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