Gap (GAP) is showing signs of a comeback.
In the second quarter, revenue grew 5% to $3.72 billion, compared to an estimate of $3.63 billion, while adjusted earnings per share came in at $0.54, compared to an estimate of $0.40. Same-store sales increased 3%, also exceeding the expected increase of 2.87%.
The company temporarily halted trading Thursday after posting second-quarter earnings on its website around 9:30 a.m. ET, then withdrew them. The report was originally intended to be released after the market closed.
According to a GAP spokesperson, the results were accidentally posted on the company’s website due to an administrative error, which resulted in the NYSE being notified and trading halted.
The company then rereleased figures showing it beat key metrics across the board. Shares are heading higher in intraday trading, up nearly 3%.
The retailer’s stock price is up more than 10% year to date, compared with rival Abercrombie & Fitch Co.’s 62% rise. (ANF).
This is the second consecutive quarter of sales growth in an effort to revitalize its brands.
Old Navy and its namesake Gap brand drove the growth, with same-store sales rising 5% and 3%, respectively.
Banana Republic posted flat sales growth as the company plans to focus on “fixing the fundamentals” and working to improve its “price and assortment architecture.”
Premium lifestyle brand Athleta reported a 4% decline in sales. It expects the brand to return to positive same-store sales growth for the rest of the year.
CEO Richard Dickson is working on a turnaround of the classic retailer, including changing the ticker symbol on the New York Stock Exchange last week.
It is now “GAP”, instead of a nod to the navigation system “GPS”, as Brian Sozzi reported.
“We spent a lot of time driving our strategic priorities, bringing back the financial and operational rigor, which allowed us to reinvigorate these brands to the extent that we could revitalize them and become part of the cultural conversation,” Dickson, a former COO at toymaker Mattel, told Yahoo Finance.
“Great product, great price, great stories, great shopping experiences. These are all fundamental issues that we are working very hard to solve.”
The gross margin also exceeded expectations at 42.6%. The company increased its merchandise margin by 410 basis points year-over-year, driven by lower raw material costs and improved promotional activities, the release said.
Gap expects net sales to increase slightly in the third quarter of 2023 and gross margin to increase by 50 to 75 basis points.
Before the results, Analysts wanted to see if Gap can still succeed in an environment where consumers are under pressure.
There is “continued pressure on the middle-income consumer,” Bernstein analyst Aneesha Sherman told Yahoo Finance.
“It’s the consumers in the middle who are hit again and again by a combination of inflation, student loan repayments, credit card debt, the complete destruction of pandemic savings and no improvement in overall sentiment. Those consumers are now looking for value. …and be more choosy.”
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“We are all operating against a backdrop of macroeconomic uncertainty,” Dickson told Yahoo Finance, adding that while Gap remains cautious about how consumers are tracking, “there are always winners in every area.”
Morgan Stanley analyst Alex Straton, who has an Overweight rating on the stock, sees upside potential for earnings in the second half of the year given “increasing confidence” in Dickson’s strategy and the execution of the turnaround.
CFRA analyst Zachary Warring isn’t as bullish, reiterating a sell rating in a recent note that reflects “the highly competitive specialty apparel retail market” that is primarily aimed at young people, he wrote.
He said the “high sensitivity to economic conditions” and the decline in shopping centers could also impact the retailer.
The distribution of income
Here’s what Gap reported, compared to what Wall Street expected, according to Bloomberg’s consensus
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Adjusted earnings per share: $0.54 vs. $0.40
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Gain: $3.72 billion versus $3.63 billion
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Same-store sales growth: 3% vs 2.87%
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Old Navy: 5.00% vs 4.76%
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Hole: 3.00% vs. 4.09%
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Banana Republic: 0.00% vs 1.62%
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Athlete: -4.00% vs -4.03%
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The company reiterated that it expects to end 2024 with modestly increasing sales growth over a 52-week period.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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