Gap, Aeropostale shares dive after results as costs, discounts

By @ibtimes on

Shares of clothes retailers Gap Inc and Aeropostale Inc fell on Friday, a day after the companies said higher input costs and discounts would hurt profitability.

Gap shares fell as much as 18 percent, while Aeropostale was down as much as 20 percent -- making them the top two losers on the New York Stock Exchange.

The S&P Retail Index <.RLX> was down 1.6 percent.

Some of the companies that have pricing power have not had the same kind of results as Gap did. That, maybe, tells you something about the strength and quality of the brands, said Jay Kaplan, portfolio manager with Royce & Associates.

Kaplan does not own Gap or Aeropostale shares, but has a stake in rival American Eagle Outfitters and Buckle Inc .

Gap, which also operates the Old Navy and Banana Republic brands, cut its full-year profit outlook and said product costs, primarily cotton, will more than outweigh retail price increases.

(Gap's) results underscored our view that the company can no longer offset product weakness and protect the bottom line with operational offsets, analyst Amy Noblin at Weeden & Co said in a note.

It strikes us as if there was little foresight or plan to manage costs, analyst Noblin added.

On Thursday, teen apparel retail Aeropostale Inc forecast second-quarter earnings much below analysts' estimates, saying discounts were hurting margins.

The same problems hurt Ann Taylor parent Ann Inc's , results on Friday, sending its shares down as much as 6 percent.

Apparel retailers have been fighting rising raw material costs, particularly cotton. This has also taken a toll on margins as retailers try to lure shoppers away from rivals by offering lower prices.

Aeropostale materially reduced any hope of a near-term turnaround by providing second-quarter guidance below even our weak projections, said analyst Eric Beder of Brean Murray Carret & Co.

He added that the company continues to struggle with fashion misses, tough competition and bloated inventories.

Kearney, Nebraska-based Buckle Inc , which missed analysts' estimates, is also facing a squeeze on margins.

Aeropostale shares were down 19 percent at $17.35, while Gap shares were down 17 percent at $19.37 on the New York Stock Exchange on Friday. Buckle was down 3 percent at $39.87.

(Reporting by Nivedita Bhattacharjee and Arpita Mukherjee in Bangalore; Editing by Roshni Menon.)

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