• Q2 comparable store down 2%
  • Net sales fall 2% to $3.90bn
  • July comparable store sales slip 3%
Gap revenues were down 6% in its second-quarter

Gap revenues were down 6% in its second-quarter

US apparel giant Gap Inc has forecast for second-quarter EPS below analyst estimates as it revealed lower net and comparable store sales.

In the three months ended 1 August, comparable store sales were down 2% versus flat last year, hurt by a 6% decline at Gap, and a 4% drop at Banana Republic. However, Old Navy booked a 3% increase. Net sales fell 2% to $3.90bn from $3.98bn in the same period last year.

"We’re pleased that Old Navy delivered another consecutive quarter of growth, while we continued to make progress against previously announced strategic actions at Gap brand," said CFO Sabrina Simmons.

For July, comparable store sales were down 3%. Gap's namesake and Banana Republic brands posted respective declines of 7% and 10%, while Old Navy rose 3%.

UBS analyst Michael Binetti said of the results: "While GPS is reducing under-performing assets (closing 175 Gap stores over next few years), has a solid history of cost control and buybacks to stabilise EPS downside risk, and Old Navy remains a solid comp/EBITDA driver (although at near-peak productivity & margins), we fear any misstep before Gap turns could result in an outsized downward revision in valuation."

Diluted earnings per share for the second quarter, on a reported basis, are expected to be in the range of $0.51 to $0.52, below UBS analysts' estimates of $0.64 per share. The guidance is based on foreign currency fluctuations, West Coast port delays, and previously announced strategic actions primarily related to Gap's namesake brand.

FBR & Co analyst Susan Anderson added: "Overall trends should improve in 2H15, as we are now beyond the port drag from 1H15, but if current trends continue, 2H numbers may have to be reduced (though share repos/SG&A reductions/cotton benefits should help). We remain on the sidelines and look for more clarity on Gap segment improvements (likely a '16 story) and the Old Navy trajectory or a more attractive entry point."