Markets
GPS

Why Gap Is Trading 5% Lower Friday Morning

What happened

Shares of Gap (NYSE: GPS), an apparel, accessories, and personal care products retailer, were down about 5% in early Friday morning trading in response to a couple of industry developments.

So what

The first development likely weighing on Gap shares is the recent downgrade from Credit Suisse, which moved Gap, among others, from neutral to underperform. Michael Binetti of Credit Suisse also lowered Gap's target price from $20 down to $14 per share, below its $17.57 closing price on Thursday. The downgrade was based on channel checks and commentary from other U.S. retailers that emphasize sluggish retail trends remained throughout the third quarter and Credit Suisse believes those negative trends are likely to remain through the fall and holiday season.

Another development likely weighing on the broader industry was a weaker-than-expected earnings report from a vertically integrated manufacturer of basic apparel, Gildan Activewear. Gildan's stock plunged more than 33% lower during Friday morning trading before recovering some of those losses. However, the company's profit warning, lowered guidance, and analyst downgrades likely added pessimism to many broader apparel and retail investors.

Women's apparel hanging on racks in an empty retail store.

Image source: Getty Images.

Now what

Friday's drop was simply the latest for Gap, which has shed almost 40% of its value over the past 12 months as many mall-based brick-and-mortar retailers continue to struggle against a wave of e-commerce competition and traffic declines -- and investors have opted to consider other consumer discretionary stocks. Now, investors will likely focus on what comes of a pending spinoff of Old Navy in 2020, which has been a bright spot in Gap's business with plans to open roughly 800 new stores. While some argue the spinoff could be good for Gap, it's also true Old Navy would be one less entity helping to offset the declines of its namesake business.

10 stocks we like better than Gap
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has quadrupled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Gap wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

 

*Stock Advisor returns as of June 1, 2019

 

Daniel Miller has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

GPS

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More