Why Gap Stock Is Down By 23% Today

Gap Stock Falls After Company Cuts Full-Year 2021 Guidance

Shares of Gap found themselves under significant pressure after the company reported its third-quarter results. Gap reported revenue of $3.9 billion and GAAP loss of $0.40 per share, missing analyst estimates on both earnings and revenue.

The company stated that significant supply chain constraints impacted comparable sales and net sales in the quarter. Compared to pre-coronavirus levels, third-quarter comparable sales grew by 5% while net sales declined by 1%.

In addition, Gap revised its full-year 2021 guidance due to supply chain problems. The company expects that it will report full-year earnings of $0.45 – $0.60 per share on a GAAP basis. Adjusted earnings per share are projected to be in the $1.25 – $1.40 range. This is a huge change compared to the company’s previous expectations. Back when the company released its second-quarter report, it expected to report full-year adjusted earnings of $2.10 – $2.25 per share.

What’s Next For Gap Stock?

Gap’s new guidance is well below current analyst consensus, so it’s not surprising to see that the stock is down by 23% during today’s trading session.

Supply chain problems and higher costs put pressure on the whole industry, and it remains to be seen whether these problems will be solved in the upcoming quarters.

Analyst estimates will likely drop like a rock in the upcoming weeks, which may put additional pressure on Gap stock. It should be noted that supply chain problems come at a very unfortunate moment when companies like Gap should make money during the holiday season.

The company’s guidance disappointed traders, and it is clear that fourth-quarter performance will be well below previous expectations. The stock’s RSI has dropped into the oversold territory due to the major pullback, but it is not clear whether speculative traders will rush to buy Gap shares as the company may have no good news to report in the next few months.

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