Gap posts quarterly increase

gapClothing retailer, Gap, has posted an increase in quarterly net income in the February to April period, which, according to an analyst, in this tough market is an achievement.

The San Francisco-based company posted a net income of $143 million, up from the $127 million the previous year. Overall revenue was unchanged at $3.44 billion.

Sales at Gap and Banana Republic declined but there was an increase at Old Navy. Comparable sales at the low-cost brand jumped eight per cent in the first quarter. Gap left its earnings prediction for the year unchanged at $1.95 to $2.05 per share.

Globally, Gap’s comparable sales slipped by eight per cent, with total sales in the US dropping by 4.3 per cent.

Art Peck, company CEO, said the retail environment continues to be challenging but that they have been improving the brand’s product quality and fit and are getting better at reacting to changes in fashion trends.

Neil Saunders, managing director of GlobalData Retail, said with the comparable sales increasing by two per cent, this has been a quarter of progress for Gap.

“That the result was delivered in a tough market is an achievement, although the easy prior year comparative of -5 per cent takes away some of the glory,” Saunders said. “The bottom line is also looking better with operating income increasing by 14.4 per cent over the prior year.”

Saunders said the group’s progress was all down to Old Navy. “Over the quarter the brand’s comparable sales increased by a very robust 8% while its total sales in the US rose by 7.4 per cent. These upward movements were all beneficial to the bottom line.”

Outside of this powerhouse of growth, the company’s other brands fared far less well.

“This imbalance means that Gap is firing on just one cylinder,” said Saunders. “More worryingly, it also undermines the group’s contention that improvements to styling, quality, and fit are delivering results. On the contrary, we believe that Gap and Banana Republic are still brands in search of a purpose and identity.”

He added this does not mean to say that no progress whatsoever has been made. Saunders said the group has, for example, made supply chains nimbler, reducing the time it takes garments to go from design to rail.

“This is a positive step which gives the company more flexibility in assessing how well certain products are selling – something that will help it avoid overstocks and heavy markdowns,” he said. “However, this improvement does not provide answers as to what sort of aesthetic or market segment Gap or Banana should be serving. These things can only be determined by a coherent brand strategy, something we believe is still wholly absent across the two troubled brands.”

Saunders said looking ahead, the pressures on Gap will continue, and the sales forecast is for a flat to slightly negative year. However, he said, this is predicated on the continued success of Old Navy.

“Should that brand stumble in merchandising or assortment, the final year outcome could be significantly worse,” he said.

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