Gap Bucks Retail Trend As Old Navy Performance Shines
Shares of Gap (GPS) jumped in early trading after the retailer reported quarterly results, including same-store sales, that beat analysts’ expectations, bucking the trend of disappointing results in the retail sector. Gap’s performance in the quarter was helped by Old Navy, a consistent bright spot for the retailer.
EARNINGS BEAT, GUIDANCE BACKED: For the first quarter, Gap reported earnings per share of 36c on revenue of $3.4B, beating analysts’ estimates calling for EPS of 29c and revenue of $3.39B. Comparable store sales for the quarter were up 2%, compared with a 5% decrease in the year-ago period. Same-store sales at Old Navy were up 8% vs. a 6% decrease last year. Gap Global and Banana Republic SSS both fell 4%. Looking ahead, Gap backed its fiscal 2017 EPS view of $1.95-$2.05, with comp sales flat to up slight. Net sales for the fiscal year are expected to be slightly below the comp sales range driven by an expected negative impact from foreign currency fluctuations year-over-year, Gap said. Additionally, Gap raised its EPS guidance for the first half of FY17, and now sees EPS down mid-single digits vs. the same period last year, an improvement from previous guidance of down high-single digits.
EXECUTIVE COMMENTARY: “Old Navy has a very significant penetration of millennial customers that are engaged in that brand,” Chief Executive Officer Art Peck said on the company’s earnings conference call. Athleta, Gap’s athleisure brand, is an “exceptional performer,” Peck added. As far as reports of declining retail traffic, Peck said that while traffic “remains an issue” for the industry, he said he is “inclined to turn this around, just as I’m inclined to say that headwinds are only headwinds if you’re facing in the wrong direction.” Peck said Gap has a “conversion opportunity, not a traffic problem.”
WHAT’S NOTABLE: Gap’s upbeat results come amid a disappointing quarter for many retailers, with department stores such as Macy’s (M), Nordstrom (JWN) and J.C. Penney (JCP) and other retailers including Ralph Lauren (RL) and American Eagle Outfitters (AEO) reporting disappointing results. Bebe Stores (BEBE), which announced in late April that it will close all its stores by the end of May, said this week it hired a liquidation firm to assist with the sale of the inventory and store fixtures. Retailers have been hurt by the increasing popularity of fast-fashion retailers, as well as an increase in online shopping. The issues facing mall-based retailers were reiterated by Urban Outfitters (URBN) CEO Richard Hayne after the company reported a weak first quarter on Tuesday. Urban said total retail segment comps sales registered a “disappointing” 3% decline, well below plan, which drove increased promotional activity and “more margin pressure than we had anticipated.”
