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Business

Surprise strength at Old Navy boosts Gap shares

By
Reuters
Published May 19, 2017
Updated May 19, 2017, 1:20 p.m. ET

Gap Inc. reported a surprise rise in quarterly same-store sales, bucking the trend of dismal results in the US retail industry, as the company benefited from the robust performance at its Old Navy brand.

The company’s shares were up 4.5 percent at $24.24 in pre-market trading on Friday.

Comparable sales at the low-cost Old Navy brand jumped 8 percent in the first quarter ended April 29, handily beating the 2.2 percent rise estimated by Consensus Metrix.

The brand reported a 6 percent drop in same-store sales a year earlier.

Old Navy, the company’s biggest brand by revenue, has been a bright spot, posting its fifth consecutive year of sales growth in 2016.

“Old Navy has a very significant penetration of millennial customers that are engaged in that brand,” Chief Executive Art Peck said on an earnings call with analysts.

Peck also remained bullish on the company’s “Athleisure” brand, Athleta, calling it an “exceptional performer.”

Gap has been looking to replicate its success with Old Navy at its Banana Republic and namesake brands.

Comparable sales at Banana Republic fell 4 percent, compared with an 11 percent drop a year earlier. Analysts had expected a decline of 4.2 percent, according to Consensus Metrix.

“All of our brands executed well over the important Easter selling season, particularly at Old Navy, which tends to realize outsized impacts over key holiday period,” Chief Financial Officer Teri List-Stoll said during the call.

The company’s same-store sales rose 2 percent in the latest quarter. Analysts on average had expected a 0.2 percent fall, according to Consensus Metrix.

Gap’s results come amid a gloomy retail environment with department stores such as Macy’s and JC Penney and apparel retailers including Ralph Lauren and American Eagle Outfitters reporting disappointing results.

“The result was delivered in a tough market is an achievement,” GlobalData Retail Managing Director Neil Saunders said.

However, Saunders raised concerns about the company’s dependence on Old Navy.

“Outside of this powerhouse of growth, the company’s other brands fared far less well … This imbalance means that Gap is firing on just one cylinder,” he said.

Gap on Thursday backed its 2017 comparable sales forecast of flat to up slightly.

Net income rose to $143 million, or 36 cents per share, in the quarter from $127 million, or 32 cents per share, a year earlier.

Revenue was flat at $3.44 billion. The company said the strong dollar impacted the quarter’s revenue by about $11 million.

Analysts on average had expected a profit of 29 cents per share and revenue of $3.39 billion, according to Thomson Reuters I/B/E/S.