• The Gap (GPS) traded 5% higher on Wednesday morning, after posting mixed earnings compared with Wall Street expectations.
  • Investors were pleased with management’s plans to close problematic stores.
  • Our analysis of this stock’s market cycles indicates that it will face continued weakness into next year.

The clothing retailer reported earnings per share of $0.68 and total revenue of $4.1 billion, compared to analyst estimates of $0.68 and $4.0 billion. For the current fiscal year, the company provided guidance of $2.55-2.60, comparing well to the average analyst estimate of $2.56.

The company plans to “urgently” close hundreds of stores that are currently not profitable or do not fit its vision for the future. CEO Art Peck clearly stated, “I plan to exit those that do not fit the future vision quickly. I’m going to move thoughtfully but aggressively.”

In analyzing the market cycles for GPS, we can see the stock fell from its initial rising phase from which it began the cycle. It briefly fell below the cycle low, but quickly rallied back. However, we are suspicious of the strength of this rally. Our analysis is that this is a negatively configured cycle that suggests lower prices coming into February 2019. Our target $22.

For more from Slim, or to learn about cycle analysis, check out the askSlim Market Week show every Friday on our YouTube channel.