While still grappling with traffic and merchandise issues, Gap Inc. showed improved financial results, reporting Thursday that net earnings for the second quarter grew 3 percent to $234 million, from $228 million in the year-ago period.
Earnings per diluted share rose 9 percent to 36 cents from 33 cents.
But it’s the company’s ability to flex costs that keeps earnings up, offsetting insufficient headway in improving certain categories and generating better selling results. “Q2 proved to me that the economic model is flexible. We are able to flex down and take costs out of the business to deliver healthy earnings. We need to grow top line and push even harder to get market share in North America,” Glenn Murphy, Gap Inc. chairman and chief executive officer, stated during a conference call.
Comparable-store sales at Gap North America were down 4 percent; Banana Republic North America was up 3 percent; Old Navy North America was up 2 percent, and International rose 3 percent. Overall, comparable-store sales were up 1 percent in the second quarter ended July 31, while net sales increased 2 percent to $3.32 billion from $3.25 billion in the year-ago period. Online sales for the quarter increased 15 percent to $258 million.
While characterizing the three-month period as “a decent quarter,” Murphy qualified the comment by stating, “We are disappointed by an inability to generate the sales we had expected.” Regarding the Gap brand, the most troubled division in the corporation, he said, “At the end of the day, we expect a lot from the brand….My patience is not indefinite.”
He said tops represented a big missed opportunity, though the Gap division has been doing well with its 1969 premium denim program and black pants. On Aug. 24, the company is launching a new sport pant, Gap Body Fit.
“There were not enough tops in the business and not enough great tops in the business to take advantage of success in bottoms,” Murphy explained. However, tops are beginning to come in “through a faster pipeline to complement the black pant.” There should be a noticeable difference beginning around Oct. 1, with “a step up for holiday and another step up for spring,” Murphy added.
Management conceded that Gap tops have been too basic and androgynous and lacking femininity and emotion.
But across the divisions, recent team meetings have a “heightened level of intensity” discussing traffic concerns, marketing, differentiating the inventory and key item initiatives, Murphy said. He said he left the meetings “invigorated.”
Gross profit grew 2 percent to $1.31 billion compared with $1.29 billion last year, while the operating margin increased 40 basis points to 12 percent compared with 11.6 percent last year. Gap pointed out that this is the highest second-quarter operating margin in a decade.
While still having traffic and merchandise issues domestically, Gap is pushing international expansion to drive better results. Last quarter, Gap grew its e-commerce from one country to 55 through international shipping, making Old Navy available for the first time to customers outside of North America. The company expects to launch e-commerce sites this month in Canada and the U.K. On the brick-and-mortar front, Gap stores should be operating in China, Italy and Australia by the end of the year, which means Gap Inc. brands, via store operations as well as online, will be available in 80 countries.
This year, about 65 stores, mostly overseas, will open, and about 110 stores, weighted toward Gap brand, will close. Net square footage is seen dropping about 3 percent in fiscal 2010. The company also revealed a new $750 million share repurchase program. This brings the company’s total share repurchase authorizations in fiscal year 2010 to $1.75 billion.
There'll be no rest for those headed to Europe for men's, as Paris just closed the gap with Milan. According to a provisional calendar released by the Chambre Syndicale, Paris Men's Week will now open a day earlier on January 16. See new highlights on the official lineup on WWD.com. #wwdnews #wwdfashion (📷: @kukukuba)
BREAKING: Jonathan Saunders is leaving @DVF. The designer has resigned from his position as chief creative officer of Diane von Furstenberg, the company said in a statement on Friday. At the time of his hire, von Furstenberg said Saunders’ arrival symbolized and facilitated her stepping back from the day-to-day duties that occupy the work of a full-time creative director. The British designer joined DVF in May 2016 and was in charge of all product categories. #wwdnews
For @versace_official’s spring ad campaign, the brand emphasized the archival prints from the spring tribute collection dedicated to the late Gianni Versace. Closing out the show were five of Gianni’s favorite models: Cindy, Naomi, Carla, Helena, and Claudia. Bowing on December 18, the new campaign is yet another tribute to supermodel-dom as the images by Steven Meisel are fronted by @iamnaomicampbell, @cturlington, @gisele and more. #wwdfashion
Four-time Oscar-nominated actress Annette Bening has been waiting 20 years to play Gloria Graham in "Film Stars Don't Die in Liverpool," which will be released on December 29. The movie about Graham – a Hollywood star known for her controversial relationship with a younger Englishman named Peter Turner – is based off a memoir Turned wrote. "She felt vulnerable to him, because she loved him, she really did love him. And anyone that we really truly are in love with, we re vulnerable to in a very deep way," said Bening. Read our full interview with the modern icon of an actress on WWD.com. #wwdeye (📷: @ninebagatelles; Styled by @cristinaehrlich)
The crisp white button down: a staple that can be dressed up or down and accessorized throughout the decades. Here, on a Art Basel-goer in 2017 on the left and on the iconic Audrey Hepburn in “Roman Holiday” in 1953 on the right. #tbt #wwdfashion (📷: Andrew Morales)
Known for her work with @victoriassecret, 25-year-old model @georgiafowler is raising her profile in Hollywood. Fowler stars in @vincecamuto’s holiday campaign, which launched in partnership with “Pitch Perfect 3.” “Almost every shoot with Vince Camuto, I’ve had to face a fear…It was definitely a challenge. I’m so grateful for it, though. I’ve always wanted to be a pop star, so that was the perfect chance,” Fowler said. Head to WWD.com to read about Fowler’s experience modeling, including at the #VSFashionShow, and her relationship with Nick Jonas. #wwdeye (📷: @jilliansollazzo)
EXCLUSIVE: Huda Kattan just became the first beauty influencer to land a major beauty deal. Kattan's business, @hudabeauty, has received a minority investment from private equity firm TSG Consumer Partners. The brand, which industry sources say is on track to do $200 million in retail sales for 2017, will receive support on product, retail and geographic expansion through the deal. Get all the details on the deal and read @_a_collins' interview with Kattan on WWD.com. Link in bio. (📷: @jgreenery) #wwdbeauty #wwdnews
Peruvian model @juanaburga_official – who is known for walking the runways of @rodarte, @viviennewestwood and @torybuch – is making the move to the big screen with drama “Los Últimos.” The film premiered in Argentina in November and arrives in the U.S. and Europe in 2018. On making the switch from modeling to acting, Burga told WWD: “It’s a completely different thing – a lot of people think it’s similar or try to connect things, especially like getting used to the camera or being looked at all the time or playing these different characrers, but film is a completely different story.” #wwdeye (📷: @jgreenery)
London’s newly opened @designmuseum will look back on the life and work of Azzedine Alaïa in a show that the designer helped to curate before he died of heart failure last month. The retrospective, which Alaïa had worked on with Mark Wilson, chief curator of the @groningermuseum, will look at the impact of his work worldwide. The show, “Azzedine Alaïa: The Couturier,” will run from May 10 to October 7. Read more about the exhibit on WWD.com #wwdnews #wwdfashion (📷: @zefashioninsider)