Gap Boosted by Old Navy, Athleta

Old Navy was once again the top performer in the Gap Inc. stable of brands.

Gap Inc., with strong performances by its Old Navy and Athleta divisions, posted a better-than-expected a 12.6 percent increase in first-quarter net income to $143 million, from $127 million in the year-ago period.

Diluted earnings per share of 36 cents compared with diluted EPS of 32 cents in the first quarter of fiscal year 2016.

Sales in the period ended April 29 were flat at $3.4 billion, though comparable sales were up 2 percent.

The San Francisco-based specialty retailer also reaffirmed its full-year diluted EPS guidance to be in the range of $1.95 to $2.05. The company continues to expect comparable sales for fiscal year 2017 to be flat to up slightly.

“We are pleased with our positive comp and earnings growth this quarter,” said Art Peck, president and chief executive officer. “We’ve made substantial improvements in product quality and fit, and our increasing responsive capabilities are enabling us to better react to trends and demand.

“While the retail environment continues to be challenging, we are focused on delivering the best possible product and customer experience, and our ability to leverage a portfolio of iconic brands and operating scale uniquely positions the company for long-term growth.”

Gap’s first-quarter results were better than many department and specialty stores that have already reported their quarterly numbers.

Comparable sales by division came in as follows: Old Navy Global, up 8 percent; Gap Global, negative 4 percent, and Banana Republic Global, negative 4 percent.

The company did not break out sales statistics on Athleta but Peck said in a conference call with investors that “Athleta is continuing to be an exceptional performer positioned in a growing segment.” It’s a matter of both store and category growth, the ceo said, adding that engagement with, and loyalty to, the brand is very high.

He said that the Gap “is viewed as an iconic brand and a relevant brand. It’s not that the brand is dead in any way, shape or form… transformational work continues. We continue to see signs under the covers that show progress, in particular showing up in the margins.”

At Banana Republic, the new president, Mark Breitbart, “knows the brand, knows the company and is hitting the ground running,” Peck said. “I’m not going to promise when we will see the progress but there are tremendous opportunities to make quick progress.”

Peck was most bullish on Old Navy, which he mentioned recently opened an 8,000-square-foot “holistic expression” of the brand, in Walnut Creek, Calif. The new format could be a prototype for future stores in a smaller footprint.

Discussing the general retail landscape, he said, “We are continuing to see downsizing, bankruptcies, commentary about traffic being soft and consumer spending lacking…We of course are not immune to these challenges. We also believe that we are uniquely positioned to turn these challenges into opportunities,to pick up market share.

“Priorities remain the same – product. We are well on the way and into the journey of enhancing our product capabilities,” improving the fit, enhancing quality, improving the value relationship, ensure products are on trend and “to deliver units into the market share opportunities that we see.”

He said the company is working with fewer vendors more deeply, “leveraging their capabilities, enhancing our cost, driving innovation, working faster, change faster and respond to demand.”

Overall, “I always look at the women’s business first,” Peck said. “I’m really pleased with the progress there. It’s not perfect, but that is the hardest business and often a bellwether.”

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