Gap Inc has increased its full-year earnings guidance after booking its fourth consecutive quarter of positive comparable sales growth, but one analyst is less positive – claiming it is simply “the same old story” with Old Navy driving group performance.
For the third quarter ended 28 October, net income up was 12.3% to US$229m, from $204m in the year-ago period, while the company’s operating margin narrowed to 9.8% from 10.2% last year.
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Net sales rose 1.1% in the period to $3.84bn from $3.80bn last year, while total company comparable sales jumped 3%, versus a 1% in the year-ago quarter.
Comparable sales increased at both the Gap and the Old Navy brands, with Gap sales up 1% compared to a decline of 4% last year, while Old Navy comp sales rose by 4% but were flat on last year. At Banana Republic, sales were down 1% compared to a 6% drop in the year-ago period.
Meanwhile, sales in the US were down by 3.1% to $3bn in the third quarter compared to last year, while Europe sales fell 3.7% to $158m. Asia sales dropped by 17% to $312m.
“Today, we are happy to report our fourth consecutive quarter of positive comps, reflecting the continued momentum in key parts of our business,” said CEO Art Peck.
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By GlobalData“We continue to make progress against the balanced growth strategy we outlined in September, driving efficiency at our more mature brands, while growing our footprint in the value and active space, and investing in our online and mobile experience.”
Looking ahead, the company has raised its guidance for fiscal 2017 and now expects its reported diluted earnings per share guidance to be in the range of $2.18 to $2.22.
Neil Saunders, managing director of GlobalData Retail, notes that while at headline level the results are not too bad, “unfortunately, behind the headline, it is the same old story”.
He adds: “Old Navy is driving group performance while the other two leading brands are struggling.”
In essence, Saunders says the change at Gap is lackluster – especially when compared to a brand like Abercrombie & Fitch which has ripped up the rulebook and completely reinvented itself. “In our opinion, Gap needs to emulate this bravery and do something radical to put the business back on a sustainable growth trajectory.”
And if Gap has made some progress, Saunders notes, “Banana still seems stuck in a rut. Despite a change of leadership, the proposition still lacks energy and focus. As such, it is hard to understand at whom the brand is targeted or what needs it is trying to address. Until these things are resolved, Banana will remain on the back foot.”
Fortunately, Gap has been able to rely on Old Navy to push up performance, Saunders adds, with the brand remaining a popular destination for younger and family shoppers.
He concludes: “In short, we believe that Gap has become a more stable business and that sales declines are starting to bottom out. However, we maintain our view that the company has no real sense of direction or ambition for two of its major brands.”
