Net income up was 12.6% to US$143m in the first quarter, compared to $127 in the year-ago period

Net income up was 12.6% to US$143m in the first quarter, compared to $127 in the year-ago period

Gap Inc has progressed in the first quarter, despite what one analyst refers to as "firing on just one cylinder", as the US speciality clothing retailer's Old Navy brand helped boost sales performance.

For the quarter ended 29 April, net income up was 12.6% to US$143m from $127 in the year-ago period, while the company's operating margin was 7.4% compared with 6.5% last year.

Meanwhile, net sales for the quarter were flat at $3.44bn.  The company noted that the translation of foreign currencies into US dollars negatively impacted reported net sales for fiscal 2017 by about $11m.

Total company comparable sales were up 2% in the quarter, compared with a decline of 5% last year.

For both the Gap and the Banana Republic brands, comparable sales were down 4% for the first quarter of fiscal year 2017, compared to decreases of 3% and 11% last year respectively. At Old Navy, sales were up 8% versus a decline of 6% last year.

"We are pleased with our positive comp and earnings growth this quarter," said CEO Art Peck. "We've made substantial improvements in product quality and fit, and our increasing responsive capabilities are enabling us to better react to trends and demand.

"While the retail environment continues to be challenging, we are focused on delivering the best possible product and customer experience, and our ability to leverage a portfolio of iconic brands and operating scale uniquely positions the company for long-term growth."

Sales in the US were down by 4.3% to $668m in the first quarter, while Europe sales fell 7.6% to $133m. Asia sales dropped by 10.7% to $250m.

For fiscal 2017, the company reaffirmed its full-year diluted earnings per share guidance to be in the range of $1.95 to $2.05. Comparable sales are expected to be flat to up slightly, while net sales are expected to be slightly below this range driven by an expected negative impact from foreign currency fluctuations year-over-year.  

Neil Saunders, managing director of GlobalData Retail, notes that while this has been a quarter of progress for Gap, this is all down to Old Navy while, "outside 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 adds. "More worryingly, it also undermines the group's contention that improvements to styling, quality, and fit are delivering results. On the contrary, we believe."

However, Saunders concedes this does not mean no progress has been made. He cites Gap's nimbler supply chain, which has reduced time to market and given the company more flexibility in assessing how product is selling, allowing it to avoid overstocks and heavy markdowns. 

However, he warns: "This improvement does not provide answers as to what sort of aesthetic or market segment Gap or Banana should be serving. These things can only be determined by a coherent brand strategy, something we believe is still wholly absent across the two troubled brands."

While the Gap brand is "less problematic" than Banana and, in GlobalData Retail's view, is not "a disaster zone" that can over time be "salvaged", Banana Republic is in a much less fortunate position.

"The brand has lost any semblance of an identity," Saunders continues. "Its assortment is a confused mishmash of products which are over-priced and out of step with what modern consumers want. The business has no real purpose, and unless management can pull off a radical repositioning, we believe the division is doomed to terminal decline. At present, we see no sign of progress and, in many ways, trying to nurse Banana back to health is an enormous distraction from the better parts of Gap's business."

Looking ahead, Saunders says the pressures on Gap will continue, with its sales forecast predicated on the continued success of Old Navy. "Should that brand stumble in merchandising or assortment, the final year outcome could be significantly worse," he adds.