Gap stock plunges as supply-chain disruptions expected to result in up to $650 million in lost sales

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Shares of Gap Inc fell more than 20% early Wednesday after the apparel and accessories retailer said global supply chain disruptions took a higher-than-expected toll on third-quarter results.

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gap gps,
-22.50%
On the earnings call, Chief Financial Officer Katrina O’Connell said the results missed expectations, and the company revised its guidance “based solely on the basis of sharp revenue and margin impacts from supply chain disruptions,” according to the FactSet transcript.

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Gap stocks tank as result, ‘critical’ supply-chain issues reduce guidance

The company now expects a loss of $550 million to $650 million in sales as a result of the supply-chain disruption. The company also expects to incur $450 million in airfreight expenses for the year.

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“We deliberately chose to broadcast approximately 35% of our holiday product, given the 2.5-month delay from the Vietnam closure in Q3 and the more than three-week West Coast port delay so that we can give our customers the same amount of holiday products as we do. can deliver on their expectations,” O’Connell said.

“While this is critical to our profitability, we believe it is necessary to further reduce sales losses and retain customers for the long term.”

Other retailers, such as Walmart Inc. WMT,
+0.56%
and Lakshya Corp. Tgt,
+0.06%,
Hired its own ships to remove bottlenecks in global supply chain networks.

Earlier in the call, Gap chief executive Sonia Singhal called Vietnam the company’s “top manufacturing country”.

Walmart, Target, Home Depot and other large retailers are renting ships to address supply chain problems. Will the strategy save Christmas?

“While we had planned into known supply chain disruptions as we entered the quarter, including COVID-related shutdowns in Vietnam, the shock to our business lasted longer than anticipated as weeks turned into months,” Singhal said.

Singlet tried to focus on some of the highlights from the troubled quarter, including bodyquality, Old Navy’s inclusive sizing program, and sales of the Yeezy “Perfect Hoodie,” which Singlet said “provided the most sales by an item.” Gone. days in the history of Gap.com,” and new digital capabilities that the company expects to grow through 2022.

Athleta and Banana Republic are also part of the Gap portfolio.

But the good news outweighed the problems, and more weight at JPMorgan prompted the downgrade to neutral. Analysts lowered their price target from $39 to $22.

,[M]Analysts cited ‘inventory is still on the way’, suggesting an increase in possible delayed receipt time to 1H on Black Friday/Holiday,” the analysts said.

Analysts say that delays in supply-chain may now give discounts to shoppers

Wells Fargo called the results “disappointing across the board”. Analysts maintained their overweight stock rating but lowered their price target from $40 to $25.

“The biggest issue we see is that the stock is now heading towards the ‘penalty box’ as management made a near-term credibility issue — raising guidance and calling out our supply chain prowess just three months ago.” , and today physically cutting guidance while others appear to be under pressure in space quite well,” the analysts wrote.

GlobalData warns that beyond supply chain problems, the Gap brand needs to do some work to generate the same enthusiasm as Yeezy merchandise.

“Our recent checks into stores reveal a holiday line up that is mundane to the point of tedium,” wrote Neil Saunders, GlobalData’s managing director.

“In our view, Gap still has a lot of work to do to rebuild its brand and make it more relevant and interesting to buyers. If it doesn’t, as soon as the heat is released from the consumer economy, it could lead to a major drop in sales. And there is a risk of seeing a fall.”

Gap stock is down 7.3%, while the S&P 500 index SPX,
-0.28%
This is an increase of 24.3% for the period.

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