Gap stock fell 7.8% on Tuesday after Morgan Stanley downgraded it to underweight with a $14 price target, still 17% below its current price of $16.85.
Analyst Kimberly Greenberger had previously given the stock an equal weight rating and a $20 price target. According to sources, she believes that promotions and discounts are affecting margins, and that Gap and other mall-based specialty businesses will return to their pre-pandemic levels of decline. She anticipates the loss of the margin will endure several years.
Greenberger's warning comes after pandemic-fueled spending pushed store operating margins to new highs.
Gap shares have lost more than 45 % of their value since the beginning of June, excluding today's drop.
Old Navy, Banana Republic, and Athleta are among Gap's well-known brands. Net sales for the third quarter ended Oct. 30 were $3.9 billion, down 1% from the same period last year. The lackluster sales were attributed to supply chain problems, according to the company.
The adjusted operating margin for the third quarter of 2019 was 4.3 %, down 320 basis points from the previous year. As a result, less than three months after raising its yearly prognosis, it had to dramatically cut it in November.
In comparison to the $1.90 to $2.05 range, which started in August, the business forecasts diluted earnings per share in 2021 to be between 45 cents and 60 cents. On a year-over-year basis, the net sales forecast was trimmed to around 20% from the near 30% rise expected previously. The operating margin was estimated to be around 4.5 % for the year, down 2.5 %age points from the previous estimate.