Gap Inc.’s Q2 Outlook Seen as Encouraging

Gap

Analysts say they are encouraged by Gap Inc.’s second-quarter outlook, after the apparel giant booked an increase in July comparable store sales, driven by promotions.

The San Francisco-based company said net sales reached $3.98 billion for the three months to 2 August 2, up 3% from $3.87 billion in the same period a year ago.

Comparable store sales, however, were flat against a 5% increase last year. Gap posted a 5% decline, Banana Republic reported flat comparable store sales, while Old Navy booked a 4% rise.

In July, comparable store sales were up 2%, driven by a 6% rise at Banana Republic and 3% increase at Old Navy. Gap, meanwhile, posted a 2% fall.

Net sales 5% to $1.17 billion from $1.12 billion the prior year.

“We’re pleased to close out the first half of the year with a positive comp in July and look forward to the new product and marketing campaigns our brands will launch this fall,” said chairman and CEO Glenn Murphy.

Gap expects second-quarter diluted earnings per share to range from $0.73 to $0.74, up from $0.64 in the same period of last year.

FBR Capital Markets & Co analyst Susan Anderson was “encouraged” by the guidance – reflecting Gap’s resilience in a tough environment, but added: “We would like to see improved regular-price trends versus reliance on clearance”.

“We look to 2H14 for an improved inventory/sales alignment and supply chain benefits, but believe that meeting annual guidance likely relies on improved merchandise execution which is yet to be evidenced.”

Meanwhile, Stifel analyst Richard Jaffe said Gap’s investments in e-commerce globally, international stores, and new concepts provides “visibility for continued earnings growth” as the rate of improvement of the core businesses slow.

“We are encouraged by the recent developments and the long-term prospects for Gap,” he noted.

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