Gap is­sues lack­lus­ter sec­ond-quar­ter profit out­look


Gap Inc. is still strug­gling. The San Fran­cisco- based re­tailer is­sued a sec­ond- quar­ter earn­ings forecast that’s be­low Wall Street an­a­lysts’ es­ti­mates, as it strug­gles to over­haul mer­chan­dise at its name­sake brand that hasn’t ap­pealed to shop­pers.

The re­sults were also dragged down by West Coast de­lays and for­eign cur­rency fluc­tu­a­tions.

The earn­ings out­look, an­nounced late Mon­day, comes as the re­tailer, which also op­er­ates Old Navy and Banana Re­pub­lic, saw a sales short­fall in the quar­ter. It also posted a 3 per­cent drop for a key rev­enue mea­sure for July. An­a­lysts ex­pected a 2.3 per­cent de­cline, ac­cord­ing to Thom­son Reuters.

The latest sales re­sults and lack­lus­ter profit out­look from Gap un­der­scores the big chal­lenges that its CEO Art Peck faces in turn­ing around the busi­ness. Peck, who took the top job in Fe­bru­ary, had been its dig­i­tal leader over­see­ing new in­no­va­tions that cater to mo­bile- savvy shop­pers. He’s been shak­ing up man­age­ment at the brands and in June the com­pany an­nounced it was scal­ing back its Gap store foot print in North Amer­ica. It plans to close 175 Gap stores in North Amer­ica over the next few years, leav­ing about 800 open. The com­pany is also try­ing to over­haul its fash­ions to make them more ap­peal­ing to shop­pers.

The com­pany said it ex­pects ad­justed sec­ond- quar­ter earn­ings to be in the range of 63 cents to 64 cents. An­a­lysts ex­pected 66 cents per share, ac­cord­ing to Fac­tSet.

Gap Inc. also said that it posted to­tal sales of US$ 3.9 bil­lion for the quar­ter, down 2 per­cent from the US$ 3.98 bil­lion in sales in the year- ago pe­riod. That was be­low the US$ 3.9 bil­lion in sales that Fac­tSet had ex­pected.

The com­pany posted declines in rev­enue at stores opened at least a year at Gap and Banana Re­pub­lic in July, but saw a solid gain at Old Navy for July. The met­ric at Gap dropped 7 per­cent, while at Banana Re­pub­lic it fell 10 per­cent. But Old Navy re­mains a bright spot for the com­pany. At Old Navy, rev­enue at stores opened a least a year rose 3 per­cent.

The com­pany is slated to re­port fi­nal sec­ond- quar­ter re­sults late next week.

“Gap brand con­tin­ues to strug­gle, and we do not ex­pect a turn­around un­til spring 2016 at the ear­li­est when the new mer­chan­dise team can be­gin to have an im­pact,” wrote BMO Cap­i­tal Mar­kets re­tail an­a­lyst John Mor­ris in a re­port to clients pub­lished late Mon­day.

Shares were un­changed in af­ter- hour trad­ing, af­ter ris­ing 37 U. S. cents to US$ 35.26 in reg­u­lar trad­ing on Mon­day. The stock is down 16 per­cent in the year to date.


This photo taken on May 14, 2014, shows sig­nage out­side a Gap store in the Shady­side neigh­bor­hood of Pittsburgh, Penn­syl­va­nia.

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