US: Gap Q1 earnings come in at top end of guidance
- Q1 earnings drop 22%
- Gross margin erods 260 bps
- Sales edge up 1%
Gap's earnings decline was driven by a weak start to the quarter
US clothing giant Gap Inc has reported first-quarter earnings that came in at the high end of its recent guidance and above analyst estimates.
Gap reported earnings of US$260m, or $0.58 per share, in the three months ended 3 May. This was a 22% drop on earnings of $333m, or $0.71 per share, in the year ago period. It beat the firm's guidance of $0.56-$0.57, and was $0.01 above Stifel estimates.
The decline was driven by a weak start to the quarter, gross margin erosion of 260 bps, and by 5% from foreign exchange rate fluctuations.
Stifel analyst Richard Jaffe said: "Results improved as the quarter progressed, leading us to believe assortments are on-trend and the company is well positioned as it enters the second quarter."
Net sales for the first quarter edged up 1% to $3.77bn from $3.73bn last year. The translation of foreign revenues into dollars negatively impacted sales by around $20m in the quarter.
Comparable sales dropped 1% compared with a 2% increase last year.
Despite the declines, the company reaffirmed its guidance for fiscal 2014 diluted EPS to be in the range of $2.90 to $2.95.
Jaffe added: "Gap's continued focus on improving the omni-channel shopping experience and offering trend-right assortment is anticipated to drive comp gains long term. We reiterate our 'buy' rating and 12 month target price of $48."
Gap Inc appears firmly set on recovery, thanks to a renewed focus on style and quality, a good customer response towards its e-commerce initiative and stabilisation of market share in the US, its home...
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