Dive Brief:
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Gap. Inc. on Monday raised its profit guidance for the year on strong holiday sales, lifting its share price 3% in after-hours trading.
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The apparel retailer's Q4 net sales rose 1% to $4.43 billion, edging out analysts' expectations for $4.4 billion and besting year-ago results of $4.39 billion. Net sales in the four-week holiday period rose 2% to $828 million, compared with net sales of $813 million for the same period last year.
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Gap, which reports its full fourth-quarter financials on Feb. 23, now expects earnings to come in at between 54 cents and 55 cents per share, or 50 cents and 51 cents per share on an adjusted basis, well past analyst expectations cited by MarketWatch for 43 cents per share, or 45 cents on an adjusted basis. For the full year, the retailer said earnings would fall between $1.68 and $1.69 per share, or $2.01 and $2.02 per share on an adjusted basis, up from its previous forecast of between $1.41 to $1.50 per share, or $1.87 to $1.92 per share on an adjusted basis.
Dive Insight:
At a time when apparel retailers are falling like dominoes — this year so far, The Limited Stores and Wet Seal filed for bankruptcy and shuttered their operations, American Apparel completed a sale to Canadian T-shirt company Gildan that entailed closing all stores, and Abercrombie & Fitch announced layoffs at its headquarters — Gap appears to have weathered the holidays quite well.
Same-store sales rose 2%, compared with a decline of 7% last year, as the flagship Gap brand joined Old Navy in compensating for faltering Banana Republic. By brand, same-store sales at Gap were flat compared to last year’s Q4 3% decline: Old Navy rose 5% compared to last year’s 8% decline, and Banana Republic fell 3% compared to last year’s 14% drop.
Overall January same-store sales just missed projections from Retail Metrics analysts of 2.1%, but Old Navy beat the research firm's 4.7% expectation, and the overall results bode well, especially in the aftermath of a warehouse fire that measurably hurt the company's sales in the last months of 2016.
"This would represent a second consecutive positive monthly comp for The Gap as it moves past the Fishkill, New York distribution center fire," Retail Metrics president Ken Perkins said in a email sent to Retail Dive ahead of Monday's earnings release. "Gap continued to aggressively promote with a number of 40% off sales in this difficult retailing environment."
It’s a surprise from a retailer that had appeared to lose its way with customers, straying from its iconic basics style and closing stores amid quarter after quarter of falling sales. Gap's lower-priced Old Navy brand usually carries the day, but over the holidays the Gap flagship brand also edged into positive territory, and even Banana Republic stanched its bleeding somewhat.
The lift may be the result of an expectations game that tendered low predictions before the holidays. “This is a company in a tailspin, with no real clue how to pull out of it,” GlobalData retail analyst Neil Saunders said of Gap in a November note. “[Gap CEO] Art Peck proudly proclaims that as the company moves into holiday season, ‘teams are sharply focused on execution and delivering great experiences across the portfolio.’ If a bland selection of lumpy sweaters thrown on a rail is his definition of a great experience, then Gap is certainly delivering. It may sound facetious, but this is the reality that greets shoppers; and it is a reality that makes one wonder whether management ever ventures forth into its own stores.”
Even Gap executives at that point were warning that the holiday season looked grim. But in a statement Monday, Peck noted that the dire retail apparel environment didn’t get the best of his brands.
“Against a challenging retail backdrop, we’re pleased to report growth in our top-line and comp sales during the critical holiday quarter,” Peck said. “We remain focused on actions that will strengthen our brands and recapture market share.” As the competition falls, his chances may continue to improve.