Gap Showing Progress In Promised Turnaround
August 06 2009 - 4:49PM
Dow Jones News
Gap Inc. (GPS) appears to be filling holes in its lingering
slump, with its Old Navy stores leading the way.
The largest stand-alone clothing retailer by revenue Thursday
issued second-quarter earnings guidance that was ahead of analysts'
expectations as it posted a lower-than-expected drop in July
same-store-sales.
Gap's sales at all stores open a year or more dropped 8% last
month, when an 8.5% decline was expected, and better than an 11%
fall in July 2008.
Same-store-sales at Old Navy, the retailer's largest sales
division, fell 8% compared with a 16% plunge in July 2008. The
figures suggest that Gap's efforts to provide better merchandise
and value at Old Navy are having some success. Old Navy operated
1,066 stores in North America at the end of the first quarter.
Gap said Thursday that net sales for the second quarter, which
closed at the end of July, were $3.24 billion, down 7% from the
same period a year ago.
The retailer expects earnings per share for the second quarter
to be 30 cents to 32 cents, ahead of the 28-cent average estimate
of analyst polled by Thomson Reuters.
The better-than-expected July comparable-store showing at Old
Navy came as customer traffic fell 6% from 4% in June. Gap investor
relations chief Evan Price said on a conference call that the
retailer "made a strategic decision to carry less markdown
inventories into July versus last year, making it more difficult to
drive comps," but producing better margins for Old Navy.
Gap's international division also showed improvement, with
comparable-store-sales off 4% in July versus 9% a year ago. Banana
Republic's comps dropped 7% versus 8% a year ago. Namesake Gap
stores saw comps fall 9% compared with 6% a year ago.
The company is also operating more profitably, analysts said.
"The benefits of tight inventories, reduced corporate costs and
lower manufacturing and transportation costs are showing up in
higher than anticipated gross and operating margins," said
Jefferies retail analyst Randal Konik.
Konik raised his 2009 earnings per share estimates to $1.31 from
$1.24 and 2010's to $1.42 from $1.35, calling Gap a "balance
sheet/cash flow/turnaround" story.
Gap shares were strong performers on Thursday, rising more than
8% to close at $18.14.
-By Karen Talley; Dow Jones Newswires;
karen.talley@dowjones.com; 212-416-2196