• Q1 earnings drop 22%
  • Gross margin erods 260 bps
  • Sales edge up 1%
Gaps earnings decline was driven by a weak start to the quarter

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."