NEW YORK — Looks like Gap Inc.'s turnaround might have to wait, at least according to one analyst.
Mark Montagna, vice president of specialty retail at C.L. King & Associates, initiated coverage on Gap Inc. with an "underperform" rating and a 12-month target price of $15, and said in his report that "Gap is trying to condition investors to expect a second-half  miss."
"Our rating is based on seeing an investment in Gap as dead money and our belief that the company is in the midst of a multiyear downhill slide," Montagna said.
Management has said on previous conference calls that it is repositioning the company and consumers should see merchandising improvements this fall. Shares of Gap closed Tuesday at $18.02, down 0.7 percent.
"We said at the beginning of year that the first half of 2006 would be challenging, and that we expect to make improvements season over season, with the second half of the year showing modest improvements in sales year over year," a Gap Inc. spokesman said Tuesday. "Gap Inc. and its brands are in the midst of a turnaround." The spokesman added, "It's worth noting that the Gap brand has brought in a number of new leaders at senior levels to effect changes."
The analyst said Gap's brands are facing "commoditization" in the market, and that its store base has grown just 2 percent since 2001 in comparison to a 40 percent increase in stores at Gap's closest competitors. Also topping Montagna's list of negatives plaguing the retailer is "an abundance of management changes" and "increased speculation of [chief executive officer Paul] Pressler's departure."
The analyst is projecting fiscal year 2006 and 2007 earnings per share at Gap to be $1.17. But he expects net income to decline "by $20 million to $973 million."
"We project second-half operating margins of 9.8 percent, but for Gap to achieve [fiscal year 2006] EPS guidance they need a 10.6 percent to 11.1 percent operating margin," Montagna said. "We don't see that happening."
The analyst added that he believes "any potential turnaround of note will not occur until after [the second half of 2006]. In our opinion, Gap is in a multiyear performance decline as its apparel slides into becoming a commodity."
“I see things on the hanger and I’m, like, ‘I never knew that color worked on me.’ It’s things you necessarily wouldn’t choose to wear, but once you put them on, you see why Janie is who Janie is." — Lily Collins on working with former "Mad Men" costume designer, Janie Bryant on creating looks for her role as Celia Brady's in Amazon series, "The Last Tycoon." 📸@jilliansollazzo #wwdeye
EXCLUSIVE: Sarah Rutson has been tapped to Build New American Fashion Group. The parent of Joie, Equipment and Current/Elliott hired the merchant to rev up its brands and expand its portfolio into designer, beauty and lifestyle categories. Read more on WWD.com, link in bio. #wwdfashion
Michael Kors' $1.3B Jimmy Choo deal has the company squaring off with Coach Inc. as both seek to build American powerhouses. Coach bought Stuart Weitzman in 2015 and Kate Spade just two weeks ago, but Michael Kors' acquisition may be putting pressure on its rival in the new push for scale. #wwdnews (📷: George Chinsee)
Meet actress Lucy Boynton, who plays opposite Naomi Watts in the recently released Netflix series "Gypsy." Boynton stopped by WWD to talk about her upcoming projects and her nomadic lifestyle. Get all the details on WWD.com. #wwdeye (📷: @dandoperalski)