After posting robust third-quarter results, Gap Inc. and Abercrombie & Fitch Co. face a tough holiday shopping season.
Abercrombie said on a conference call last week that it is well-positioned for holiday, and is driving on with its expansion, especially overseas.
For Gap Inc., a cautious outlook for the fourth quarter reminded Wall Street that the holiday shopping season could be particularly challenging for the specialty retail channel, which is already locked into a competitive market share battle.
In an example of the cautious climate, Hot Topic Inc. reported in-line earnings per share last week of 15 cents, but Citigroup analyst Kimberly Greenberger slapped the company's stock with a downgrade to "hold," saying it would be prudent to wait for the retailer to deliver improved sales.
At Gap, net earnings for the quarter ended Nov. 3 swelled 26 percent to $238 million, or 30 cents a share, from $189 million, or 23 cents, in the previous year on sales of $3.9 billion. Same-store sales fell 5 percent during the quarter. Gap's online sales rose 36 percent to $247 million from $182 million last year.
The company revised its 2007 EPS guidance to a range 99 cents to $1.05 per share from the previous guidance of a range of 90 to 95 cents.
Sabrina Simmons, senior vice president of corporate finance, said on a conference call to analysts that the outlook remains cautious for the rest of 2007. The rationale, Simmons explained, is that the fourth quarter is "our most important selling season....Given that we are still in a turnaround, it is difficult to predict how product will be accepted. And the macroeconomic environment warrants caution."
Glenn Murphy, chairman and chief executive officer of Gap, said the company made progress in the third quarter in regard to inventory and reducing expenses.
On the conference call, Murphy said, "we also feel this is going to be a tough economic environment in this upcoming holiday selling season. We feel good that we've been disciplined on the inventory front....The consumer will ultimately be the judge, but we feel we are well-positioned for the holiday season and we're also very clearly aware this is going to be a tougher environment than we faced last year."
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