At the start of the day Gap Inc gapped down below the 200 MA. This is an extreme example of stock re-evaluation. So what happened?
First Quarter earnings were announced today.
Here are some highlights from the announcement:
- Gap Inc. (NYSE:GPS) today reported that net income for the first quarter, which ended April 30, 2011, decreased 23 percent to $233 million compared with $302 million for the first quarter last year.
- As stated earlier in the year, the company expects business performance during fiscal year 2011 to be heavily impacted by pressure from sourcing cost inflation, particularly in its value channels.
- While the company anticipated that the cost of goods would increase during the back half of the year, costs are actualizing above the initial estimates.
What the retail sector is finding out is that food / energy are of more importance to the consumer. As food and energy have sky rocketed, stores are force to cut margins to incite consumers to purchase. But accompanying food and energy on their surge up was clothing materials such as cotton.
Cotton has come off its multi year highs, but no doubt higher prices will be around for sometime.
Clothing retailers such as The Gap, American Eagle, and Abercrombie and Fitch are starting to feel the pinch resulting in narrowing gross margins.
For some more information on the squeeze these and other retailers will face see:
US clothes shoppers facing squeeze
Now for a chart for Retails via ETF: XRT
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