Old Navy brand supports Gap to 2.8% growth in profit
Gap Inc (GPS.N) said it expected relative sales to be flat to up slightly in 2017, reversing two straight years of drops, indicating that the apparel chain’s turnaround efforts are getting momentum.
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The company’s shares were marginally up at US$24.10 in after-market selling on Thursday. They had closed down 3.6 percent in regular dealing.
Under CEO Art Peck, Gap has been looking to replicate the completion of its low-end Old Navy name at its Gap and Banana Republic business.
Gap has improved its product lines, maintained a stronger list and reined in costs as part of the action.
The efforts are paying off, with the business reporting flat same-store sales at its Gap brand, finishing nearly three years of quarterly declines, and a rise of 5 percent at Old Navy, the company’s biggest trademark by revenue.
A flat relative sales and profits forecast could see as a relative win, but that is not the view of a growing business, Instinet analyst Simeon Siegel told Reuters.
Like other traditional apparel retailers, Gap is also battling shoppers’ changing preferences as many turns to online retailers or purchase at fast-fashion chains such as H&M (HMb.ST) and Inditex’s (ITX.MC) Zara that offer trendier dresses at lower prices.
The company said it expected to open about 40 company-operated stores in 2017, focusing on Athleta and Old Navy locations.
“I am bullish on Athleta, and I am bullish on the brand’s increase prospects,” Gap Chief Executive Art Peck said on a pay call with the analyst.
Athleta, launched in 1998, provides fitness clothes for women including swimwear and yoga clothes. Gap does not break out Athleta deals.
“Athleta plays in one of the few regions within local that are still determining growth, and the company remains to capitalize on that occasion,” analyst Siegel said.
Gap’s net sales rose 1 percent to $4.43 billion in the 4 quarter ended Jan. 28, the first sales rise after seven through quarterly declines.
Analysts on average had expected revenue of $4.39 billion, according to Thomson Reuters.
Gap’s net profit grew to $220 million, or 55 cents per share, from $214 million, or 53 cents per share, a year earlier.
Excluding things, the company earned 51 cents per share, in-line with analysts’ average estimation.