Shares of The GAP are plunging after hours, after the company put out a huge earnings warning for coming quarters.
The stock is off 14%.
What’s interesting is the why: Inflation.
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. The company now expects product costs per unit to be up about 20 per cent in the back half of the year, which will more than outweigh retail price increases. As a result, the company has revised guidance for fiscal year 2011 diluted earnings per share to be in the range of $1.40 to $1.50.
That’s about $.30 lower than previous estimates, and it’s a confirmation that the cost-inflation worries everyone is talking about are taking down companies.
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