Gap Inc grows beyond Old Navy, same-store sales cruise past estimates

Gap Inc’s dependence on its low-end Old Navy line of clothing lessened in the holiday quarter as the apparel retailer managed to better its sales of other brands, helping the company’s same-store sales blow past Wall Street estimates.

Shares of the San Francisco-based company rose nearly 10 percent to $34.69 in extended trading on Thursday.

Gap’s plan to spend more to bring new styles quicker to stores and improve its online offerings in a bid to drive traffic and fend off competition from fast-fashion chains such as H&M and Forever 21 is paying off.

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Same-store sales at Old Navy, which sells lower priced apparel, rose 9 percent, beating 3.4 percent increase forecast by research firm Consensus Metrix.

However, until recently, Gap was struggling to replicate its success with Old Navy at its other brands such as Gap and Banana Republic.

Chief executive Art Peck said better response time in bringing the latest apparel from the ramp to its stores has helped Gap brand overcome poor inventory management.

“We dug in, I diagnosed the situation, we made a change and we intend to move very quickly forward,” Peck said in a conference call with analysts.

Last month, Peck let go chief executive for Gap brand, Jeff Kirwan, citing his disappointment with the division’s performance.

Same-store sales at Gap brand, was flat in the quarter, compared with a forecast of 0.5 percent drop.
Banana Republic, a sore spot for Gap in recent years, reported a surprise rise in comparable sales for the quarter.

Gap’s results beat for the holiday quarter were similar to those of other retailers such as TJX Cos and Macy’s as the industry gains from higher consumer confidence and a boost in spending from the U.S. tax cuts.

Overall same-store sales rose 5 percent in the fourth quarter ended Feb. 3, while analysts were expecting sales to rise 1.2 percent.

Gap said it would raise its fiscal 2018 dividend by 5 percent to $0.97 per share. The company’s full-year earnings per share forecast of $2.55 to $2.70 came in above analysts’ expectation of $2.34.

Excluding certain items, the company earned 63 cents per share in the fourth quarter, beating the average analyst estimate of 58 cents per share.

Total revenue rose 7.9 percent to $4.78 billion, above the analysts’ estimate of $4.67 billion, according to Thomson Reuters I/B/E/S.