Gap's earnings come out earlier - and better - than expected, despite tough retail backdrop

By Bill Peters

'In comparison to where we were only one year ago, we are in a stronger position across key metrics that matter,' CEO says

Shares of Gap Inc. rose Thursday after the clothing retailer reported second-quarter profits and revenue that were better than expected and offered an upbeat full-year forecast despite a difficult backdrop for the apparel industry.

The company, which along with its namesake stores also operates Old Navy, Banana Republic and other brands, said it still expects sales for its full year to be "up slightly," in keeping with its prior outlook.

But it bumped its gross-margin outlook higher to a 200-basis-point expansion, compared with earlier expectations for an expansion of "at least" 150 basis points, and also said it expects higher operating-income growth.

Gap released the results earlier in the day than anticipated due to what it described as an administrative error. The results were published as other retailers have warned of a more cautious consumer still beset by a two-year rise in prices for essentials including groceries.

Since last year, the company has shaken up its executive team and brought aboard designer Zac Posen in an effort to maintain relevance, as fast fashion and social media force traditional apparel companies to be more nimble in how they adapt to trends.

"In comparison to where we were only one year ago, we are in a stronger position across key metrics that matter - including net sales, margins and our cash position - and we are making consistent progress in the reinvigoration of our brands," Chief Executive Richard Dickson said in a statement.

Shares were up 3.4% in early-afternoon trading. The stock is up 10.9% so far this year.

Gap was initially set to report results after Thursday's closing bell. Trading in the stock was temporarily halted after the results were published earlier in the day.

The company reported second-quarter net income of $206 million, or 54 cents a share, compared with $117 million, or 32 cents a share, in the same quarter last year. The profit figure released on Thursday was above the FactSet analyst consensus estimate of 41 cents a share.

Revenue rose 5% from the comparable quarter a year ago to $3.7 billion, above the consensus estimate of $3.63 billion, while same-store sales were up 3%, a bit below the estimated 3.2% gain.

Gap saw continued same-store-sales gains at Gap and Old Navy locations, the latter of which the company has tried to make more attractive to families. Executives said "reinvigoration efforts" at Gap stores have helped the chain pick up a bigger share of the market.

Same-store sales at Banana Republic, meanwhile, were flat compared with the year-earlier quarter.

Gap said Banana Republic was still trying to turn itself around and fix its pricing and product assortment. Management has said it wants to make Banana Republic into a destination for wealthier shoppers.

-Bill Peters

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08-29-24 1424ET

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