SAN FRANCISCO — The stock of struggling retailer Gap Inc.’s stock fell by 8 percent Wednesday, driven down by another poor quarterly earnings report and worries the company’s plans to raise $1 billion will depress earnings even if sales rebound.
Gap’s shares dropped $1.15 to close at $12.40 on the New York Stock Exchange. Wednesday’s trading gave investors their first chance to react to Gap’s fourth-quarter results, released after the market closed Tuesday.
Besides disclosing its second consecutive quarterly loss, Gap said February sales at its stores open for at least a year — a key industry benchmark known as same-store sales — were so far down by 17 percent from the same time last year. It marks the 22nd consecutive month of declining same-store sales at the San Francisco-based company.
The Gap is facing its biggest problems at its flagship chain. The February same-store sales at the Gap chain were down by 23 percent through Monday, worse than management projected. On Tuesday, the company’s chief executive Millard Drexler during a conference call promised to return to best-selling basics of the past like stretch pants and ribbed sweaters, but analysts are becoming restless.
“Reality is setting in. They are clearly having a really tough time at the Gap stores,” said industry analyst Richard Jaffe of UBS Warburg.
To improve its cash flow, Gap plans to raise $1 billion by issuing debt that can be converted into stock into a later date. The deal may result in an additional 60 million outstanding shares, Jaffe estimated.
Any increase in outstanding sales will depress the company’s earnings per share.
Both Standard & Poor’s and Moody’s Investors Service on Wednesday assigned junk ratings to Gap’s $1 billion offering. The services downgraded Gap’s credit rating to junk status earlier this month, citing the company’s sagging sales and expectations that a turnaround is unlikely to occur until the second half of this year, at the earliest.