Gap stock plunges after big earnings miss

Yahoo Finance’s Julie Hyman and Brian Sozzi discuss Gap's earnings miss and plunging stock.

Video transcript

JULIE HYMAN: And let's start with Gap in particular, that company cutting its forecast for 2021 sales and profits. And it's very fascinating here to me, Brian Sozzi, because, as I mentioned, last week we had Walmart and Target and other retailers as well saying that they have inventory well in hand going into the holiday season.

And even though it's costing them more, and as those two retailers decided, not costing their customers more. Gap just does not seem to have its hands around this. And it seems to be a combination of factors. One, perhaps, the particular management, you could say, at this company, also perhaps it being purely apparel versus the mix that some of the other retailers have. But I don't know, Sozz. You are not looking with a kind eye on this report, perhaps.

BRIAN SOZZI: I wish we were able to show my heart beat here via WHOOP strap stats here on the screen like they do for golfers, because it's actually just coming through my chest right now. This is a terrible, terrible quarter from Gap. They missed a really bad whiff on earnings, $0.26 versus $0.50? Are you kidding me? They came out here and they blamed last night $300 million in lost sales because of supply chain bottlenecks that are now using more expensive freight costs.

I don't care what they did. They also came out here and lowered their guidance, $1.25 a share to $1.40 a share. Three months ago, they told investors to expect to $2.10 to $2.25 for the full year. And my problem is this, this is now a major credibility problem with the Gap executive team, which I have said in the past, this is the best group of executives at Gap in more than a decade.

But still, they are now in the penalty box, as I have seen frequently mentioned here, in various street notes. And they should be. I hate when I see these retail executives come out here, pump up a story, only to have it blow up in their face three months later because of this unbridled optimism that continues to exist in retail.

I have seen this going on about 18 years of me covering the retail sector, about 12 as an analyst, and now since as a journalist. It is ridiculous. And that falls in the lap of Gap's executive team here. How can you sit here three months ago and put out this type of outlook when you know you're still coming up against these tough financial costs and pressures during the holiday season? It's absolutely embarrassing. And shame on them.

I hate when investors lose this type of money in one single session. And now, the opening price here for Gap is going to be about $19.20. That is now below the stock price when the CEO, Sonia Segal, took over on March 23, of $24.64. Despite all the hype they have come out here on the turnaround plan, despite all the hype around Kanye West, you now have a stock price that is under considerable pressure. And I don't see the next catalysts coming up here.

This is an embarrassing quarter, embarrassing guidance. If you do not believe in your guidance, it's very simple, don't put it out there. Do not put it out there.

JULIE HYMAN: You're really taking this personally, Sozz. I'm going to give you a moment.

BRIAN SOZZI: I'm just reporting news. And this is just very poor investor expectations, Julie. It's not how it should be done. If you do not believe you can hit your guidance, don't put it out there or stay conservative and try to beat it. This is a very poor management job of this team.

And we've asked them to come on. They won't come on. I want to know, where is the Kanye West stuff in these Gap stores? I want to walk into the top 500 Gap stores and see Kanye West in the stores. I want to see cool. I also want to know, how is Gap going to hit a 10% operating margin by 2023 as they have guided to? 5% they're looking for this year. Where are those extra 500 basis points going to come from? It's unclear to me.