Gap Inc net income up was 12.6% to US$271m in the second quarter, compared to $125m in the year-ago period

Gap Inc net income up was 12.6% to US$271m in the second quarter, compared to $125m in the year-ago period

Gap Inc has increased its full year earnings guidance after booking its third consecutive quarter of positive comparable sales growth, but one analyst is less confident that the retailer is in "full recovery mode."

For the second quarter ended 29 July, net income up was 12.6% to US$271m, from $125m in the year-ago period, while the company's operating margin was 11.9% compared with 7.2% last year.

While net sales slipped 1.3% to $3.8bn from $3.85bn, the company noted that the translation of foreign currencies into US dollars had a negative impact of about $37m.

Total company comparable sales were up 1% in the quarter, compared with a decline of 2% last year. 

Comparable sales declined for both the Gap and the Banana Republic brands, but at a lower rate than last year. Gap sales were down 1%, compared to a decline of 3% last year, while Banana Republic comp sales fell by 5% versus negative 9% last year. At Old Navy, sales were up 5% versus flat in the year-ago period.

"With a third consecutive quarter of comp sales growth, we are seeing our investments in product, customer experience, and brand equity begin to pay off," said CEO Art Peck.

"As we continue to focus on long-term growth, we are accelerating our strategies that put the customer at the centre of everything we do – including a focus on product categories where we have clear differentiation, continued investment in our online and mobile offerings, and taking advantage of our operating scale to drive speed to market, responsiveness to customer demands and efficiency."

Sales in the US were down by 4% to $719m in the first quarter, while Europe sales fell 6.9% to $148m. Asia sales dropped by 10% to $252m.

However, based on the "strength of the first half", Peck says the retailer is pleased to increase its full year earnings guidance.

For fiscal 2017, the company now expects its reported earnings per share guidance to be in the range of $2.12 to $2.20. 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 as well as the impact from international closures in fiscal year 2016.

Neil Saunders, managing director of GlobalData Retail, notes that while the company has made some progress, he is "less confident that Gap is firmly in recovery mode."

He adds: "In our view, the improvements are very imbalanced, with Old Navy underpinning all of the growth. As much as this stabilises the group, it masks underlying problems at other brands."

Away from Old Navy, in which GlobaData remains "broadly confident," Saunders says the impression of the Gap brand remains "rather dull" and notes "much more work is needed" in order to revive it.

Meanwhile, Banana Republic remains firmly on the back foot, with what Saunders says is "little progress to-date, with collections in stores still off-pitch and overpriced."

"Looking ahead, we are more confident about Gap now than we were a year ago," he adds. "However, we remain sceptical that management has the proper strategies in place to bring about a strong revival across the whole business."