Gap Gets Downgraded, Activist Interest Hinted
● The possibility of activist shareholders pressuring the company to spin off a brand has been raised.
Gap Inc. got hit by another Barclays downgrade on Friday, triggering rumors that the operator of Old Navy, Gap, Banana Republic and Athleta brands could decide to spin off a brand to raise shareholder value.
Barclays analyst Adrienne Yih cut her rating on Gap Inc. stock to "underweight from equal weight," which was widely reported in the media Friday.
She set a price target for Gap stock at $13 a share. The previous target was $17. Gap's stock on Friday closed down 4 percent to $13.52 on the NYSE.
Yih, according to reports, said: "There could be activist interest to split the brands and monetize the value of Athleta in particular, which could be a risk to our underweight rating." Athleta, unlike the other Gap Inc. brands, has been a strong performer and steadily growing.
Barclays is concerned about the San Francisco-based retailer's negative sales trends, increasing promotions at Gap and Old Navy, a lack of consumer loyalty to those brands, and increased advertising spending at Gap. A new Gap ad will feature Jon Batiste's song “Freedom” and was scheduled to premiere during the Grammy Awards show on Sunday. It ties into Gap's efforts to champion individuality and being your true self. The ad was shot by Christian Weber.
Last February, Barclays lowered its
Gap Inc. rating to “equal weight” from “overweight” and in January, Morgan Stanley lowered its Gap rating to “underweight” from “equal-weight.”
The company has also been affected by supply chain issues and inflation, which would hurt lower-income consumers shopping Old Navy the most.
The $16.7 billion Gap Inc., impacted by supply chain issues, higher freight costs and ongoing declines at the Gap and Banana Republic brands, incurred a loss of $16 million, or 4 cents a share, in its fourth quarter but took a big swing into profitability for the year overall.
There were also charges related to winding down its European business, but excluding those, the fourth-quarter adjusted diluted loss per share was 2 cents. In the fourth quarter a year ago, Gap Inc. reported a profit of $234 million, or 62 cents a share.
For 2021, Gap Inc. had a profit of $256 million, or 67 cents a diluted share, versus a loss of $665 million, or $1.78 a share, in 2021. Adjusted earnings per share were $1.44 last year.