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Gap shares rise as Old Navy again boosts results, forecast

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08/18/2017 | 12:22am CEST
FILE PHOTO -  Logo of GAP clothing retailer is seen at company's store at Tbilisi Mall in Tbilisi

(Reuters) - Clothing retailer Gap Inc (>> Gap Inc) reported better-than-expected second-quarter results and raised its full-year profit forecast, helped by strong demand for Old Navy products, fewer discounts and better managing inventory.

(Reuters) - Clothing retailer Gap Inc (>> Gap Inc) reported better-than-expected second-quarter results and raised its full-year profit forecast, helped by strong demand for Old Navy products, fewer discounts and better managing inventory.

The company's shares rose nearly 6 percent in trading after the bell on Thursday.

Gap's same-store sales increased 1 percent in the three months ended July 29, rising for the third straight quarter. Analysts were expecting sales to be flat year-over-year, according to research firm Consensus Metrix.

The results mirror a trend among U.S. retailers: department stores such as Macy's Inc (>> Macy's Inc) and J.C. Penney Co Inc (>> J C Penney Company Inc) have struggled, while apparel retailers like Ralph Lauren Corp (>> Ralph Lauren Corp) and Urban Outfitters (>> Urban Outfitters, Inc.) have benefited as they better managed inventory and gave fewer discounts.

Since becoming Gap's chief executive in 2015, Art Peck has reinvigorated the Old Navy brand, its biggest revenue contributor, through celebrity tie-ups, social media campaigns and better styles – dresses, pants, mid-tops and shorts did well in the latest quarter.

Same-store sales at Old Navy rose 5 percent, beating analysts' estimate of 3.1 percent. Old Navy's sales have now risen in seven of the past ten quarters, a bright spot for the company as its Gap and Banana Republic brands struggle.

Peck has also focussed on Gap's supply chain, taking a leaf out of the book of fast-fashion retailers such as Zara and H&M, by reducing the time taken to bring latest fashion from the ramp to stores.

Peck on Thursday held up the swift turnaround time at Athleta, its active wear brand, as an example of initiatives that have driven double-digit growth in the brand this year.

"Athleta now has more than half of its bottoms business on responsive. And by responsive, I mean back in the styles in 8 weeks or less," Peck said in a post-earnings call.

The Gap brand recorded its smallest drop in same-store sales the past 10 quarters, but Banana Republic's sales fell more than expected.

The company's total revenue fell 1.4 percent to $3.799 billion (2.95 billion pounds), edging past analysts' estimate of $3.77 billion, according to Thomson Reuters I/B/E/S.

Gap's net income more than doubled to $271 million, helped by an insurance-related gain and year-ago restructuring costs.

Excluding the insurance-related gain, Gap's profit of 58 cents per share easily beat analysts' estimate of 52 cents.

Gap raised its adjusted profit forecast for fiscal 2017 to $2.02 to $2.10 per share from $1.95 to $2.05.

(Reporting by Gayathree Ganesan in Bengaluru; Editing by Savio D'Souza)

By Gayathree Ganesan

Stocks mentioned in the article
ChangeLast1st jan.
J C PENNEY COMPANY INC -5.07% 2.62 Delayed Quote.-17.09%
MACY'S -4.81% 37.43 Delayed Quote.48.59%
RALPH LAUREN CORP -3.58% 130.26 Delayed Quote.25.62%
URBAN OUTFITTERS, INC. -1.29% 46.05 Delayed Quote.31.35%
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Financials ($)
Sales 2019 16 561 M
EBIT 2019 1 395 M
Net income 2019 999 M
Finance 2019 514 M
Yield 2019 2,90%
P/E ratio 2019 12,90
P/E ratio 2020 12,23
EV / Sales 2019 0,75x
EV / Sales 2020 0,73x
Capitalization 12 938 M
Chart GAP
Duration : Period :
Gap Technical Analysis Chart | GPS | US3647601083 | 4-Traders
Technical analysis trends GAP
Short TermMid-TermLong Term
TrendsBullishNeutralBullish
Income Statement Evolution
Consensus
Sell
Buy
Mean consensus HOLD
Number of Analysts 27
Average target price 32,4 $
Spread / Average Target -3,1%
EPS Revisions
Managers
NameTitle
Arthur L. Peck President, Chief Executive Officer & Director
Bob J. Fisher Non-Executive Chairman
Teri L. List-Stoll EVP, Chief Financial Officer & Accounting Officer
Sally Gilligan Chief Information Officer
Mayo A. Shattuck Independent Director
Sector and Competitors
1st jan.Capitalization (M$)
GAP-0.91%12 938
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KERING23.66%70 637
FAST RETAILING CO LTD14.39%50 268
ROSS STORES7.14%32 375
ZALANDO7.20%13 694