After the record margins reported by softline retailers in 2021, the third-quarter reports reflected “cracks” and the consensus does not seem “cautious enough on 2022 margin headwinds & potential erosion,” according to Morgan Stanley.
The Gap Analyst: The investment bank's Kimberly Greenberger downgraded the rating on Gap Inc (NYSE:GPS) from Equal Weight to Underweight, while reducing the price target from $20 to $14.
The Gap Thesis: The 2021 holiday updates from softlines and the latest US apparel import data suggest a potential deceleration in apparel demand and the beginning of inventory re-stocking, Greenberger said in the downgrade note.
“If continued, retail price discounts & promotions could return as soon as 1Q22, leading margins lower. This leaves room for negative EPS revisions & further multiple compression through 2022, & makes us cautious on these sub-segments,” the analyst wrote.
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“GPS is in need of significant transformation...we like new mgmt’s commitment to fleet & corporate downsizing, but are less confident in their ability to execute following 3Q21's mis-execution,” she added.
“Our fundamental concerns remain: falling store traffic, eComm disintermediation, declining brand health, apparel price deflation, falling margins,” Greenberger further said.
GPS Price Action: Shares of Gap had declined by 7.55% to $16.89 by mid-morning Tuesday.
Photo: Courtesy of Mike Mozart on Flickr
