By Dhirendra Tripathi

Investing.com – Gap stock (NYSE:) plunged 7.8% Tuesday after Morgan Stanley MS has downgraded the stock to underweight at $14 with a target price of $14. This is still 17% less than its current price of $16.85.

Kimberly Greenberger, analyst at the Stock Market Research Institute had previously rated it equal weight and set a $20 target. She believes that promotions and discounting are reducing margins. According to her, Gap, and other mall-based specialty stores, will return to their declining pre-pandemic days. According to her, the margin erosion could persist for many years.

Greenberger’s caution comes after the pandemic-fueled consumption drove retailers’ operating margins to a record.

Excluding today’s fall, Gap shares have lost more than 45% of their value since the start of June.

Gap houses well-known brands such as Old Navy, Banana Republic, and Athleta. The net sales for the Oct. 30th quarter were $3.9billion, down by 1% from 2019. Supply chain disruptions are the reason for muted sales according to the company.

3.3% adjusted operating margin in the third quarter was lower than 2019, down by 320 basis point. It was forced to drastically lower its outlook for the year in November after it had increased it by 4.3% during the third quarter.

It expects 2021 earnings per share between 45c and 60c, as opposed to $1.90-2.05 in August. Net sales were reduced to 20%, compared with the close 30% year-on-year growth. From the earlier estimate, the operating margin decreased by 2.5 percentage point to approximately 4.5%.