Old Navy, long the Gap Inc.’s biggest problem, became something of a savior in the first quarter as the division’s improved results helped its parent firm exceed expectations despite a 13.7 percent profit decline.
Net income for the three months ended May 2 totaled $215 million, or 31 cents a diluted share, 1 cent better than analysts’ consensus estimates but below the $249 million, or 34 cents, reported for the year-ago quarter.
Net sales fell 7.6 percent to $3.13 billion. While comparable-store sales fell 8 percent, Old Navy registered the smallest decline, 3 percent, versus slides of 12 and 13 percent for the North American units of Gap and Banana Republic, respectively.
Gap’s results came after the close of the market, as did improved bottom-line results from Aéropostale Inc. and Pacific Sunwear of California Inc. However, Zumiez Inc. weighed in with a loss versus a year-ago profit, although its results were somewhat better than analysts had expected.
Raising the performance bar to a level not matched by its specialty store competitors, The Buckle Inc. reported strong results before the market opened.
During an earnings call Thursday evening, Gap chairman and chief executive officer Glenn Murphy appeared to summarize the feelings of many retail executives during this first-quarter earnings season.
“The market conditions from our perspective continue to be challenging,” Murphy said. “I don’t think any business would ever want to produce results below last year, but with the conditions which we’re operating in, I think it was respectable, and versus a lot of our competitors, I was pleased with our performance.”
Murphy credited the results to a “more efficient economic model,” which gave the company a quarterly gross margin of 39.6 percent of sales, only fractionally below the 39.7 percent of last year’s first quarter.
Operating expenses were reduced 7.6 percent to $886 million, while marketing costs inched up 3.2 percent to $96 million, as the company put more money into the marketing campaigns of Old Navy and Athleta, the athletic concept acquired by Gap last September.
The strategy paid off as net sales at Old Navy dipped just 4.8 percent to $1.18 billion, and revenues at the company’s direct division jumped 13.1 percent to $267 million, thanks to the addition of Athleta to the company Web site last month.
“I think it’s one step at a time,” Murphy said of Old Navy. “As we look forward to the second quarter, we have to evolve the [marketing] campaign.”
Elsewhere, quarterly sales at Gap North America contracted 14.5 percent to $834 million, while Banana Republic’s declined 11.7 percent to $475 million.
Murphy acknowledged the need for increased marketing spend at Gap in order to drive traffic, but he also focused on the need for the brand to improve its merchandise.
“I do feel confident with the product at Gap,” he said. “We are really finding a way to speak to the customer.”
After The Buckle blew past analysts’ estimates with a 43.5 percent profit increase Thursday morning, shares of the Kearney, Neb.-based specialty retailer rose 5.3 percent to $34.57 later in the day.
Net income rose to $26.9 million, or 58 cents a diluted share, as sales in the quarter rose 24.6 percent to $199.7 million and grew 17.7 percent on a same-store basis. Analysts polled by Yahoo Finance expected earnings of 50 cents on sales of $195.4 million. Gross margin improved to 43.4 percent of sales versus 40.9 percent a year ago, principally on lower markdowns.
The company said its women’s business grew to 59.5 percent of the total, up from 55 percent in last year’s quarter, while men’s receded to 40.5 percent from 45 percent. Men’s average price points increased 9 percent to $48.05, while women’s price points rose 5.5 percent, to $41.10, in the year-ago quarter. Private label eased to about 28 percent of sales, from slightly under a third a year ago.
“Right now, there’s several good things going on with the brands, so that’s just taking the growth out of the private label at this point,” president and ceo Dennis Nelson said on the company earnings call.
The company opened six stores and closed one store during the quarter and anticipates opening 21 stores this year. It has 392 stores in operation.
Like Buckle, Aéropostale finished the quarter with higher sales and profits, but fell 1 cent short of analysts’ earnings expectations.
Net income rose 81 percent to $31.7 million, or 47 cents a share, from $17.5 million, as sales bounded 21.3 percent to $408 million and comps grew 11 percent.
Julian Geiger, chairman and ceo, said consumers would remain price-sensitive for the foreseeable future, but that the company would continue to keep up with fashion trends.
“While price is important, product is more important,” he noted on an earnings call Thursday afternoon.
The firm projected second-quarter earnings of 43 to 45 cents a diluted share, up from 31 cents a year earlier. Aéropostale has 911 North American stores targeting 14- to 17-year-olds.
Pacific Sunwear of California wasn’t able to generate a profit, but it did significantly shrink its first-quarter loss. However, the company continued to see its sales decline and said it expects more contraction ahead.
The Anaheim, Calif.-based teen retailer posted a loss of $8.7 million, or 13 cents a diluted share, compared with a loss of $37.1 million, or 53 cents a share, a year ago. Excluding charges from discontinued operations, the year-ago loss was 17 cents.
Sales in the first quarter fell 16.3 percent to $223.5 million while comps eroded 18 percent.
The loss was 16 cents better than analysts had expected.
Based on expectations of a decline of 17 to 20 percent in comps, it projected a loss of between 11 and 17 cents in the current quarter.
PacSun’s neighbor to the north, Zumiez, fell to a loss from a profit in the quarter, aggravated by double-digit comp declines.
The Everett, Wash.-based board sports apparel retailer recorded a loss of $1.7 million, or 6 cents a share, versus net income of $1.4 million, or 5 cents, a year ago. Net sales fell 2.4 percent to $76.8 million as comps stumbled 15.3 percent.
The loss was better than the 8 cents expected by analysts.
Rick Brooks, ceo, said the company is cautious about its near-term prospects, but believes it can expand its market share as the consumer environment improves. The company plans to open 36 stores in fiscal 2009.
Like PacSun, Zumiez expects continued comp declines in the low- to mid-20 percent range in the second quarter. The net loss for the period is expected to range between 14 and 17 cents a share.
“Azzedine has been one of the biggest influences in my life. He has always been such a strong, loving, fatherly figure to me. I call him Papa. His designs are indescribably unique, they are pieces of art. He knew how to make the female form look its loveliest. I have so many memories of him; my favorite might be during my first show with him in Paris. He liked me and he wanted to help me get more work. He called all his friends at Kenzo and Comme des Garcons, and asked them to book me. They said, ‘But she can’t walk!’ And he said, ‘but she has such a great ass!' His friendship and support has been the great privilege of my career. I can't imagine life without him. Repose en paix mon Papa.” - @stephanieseymour tells @wwd. #wwdfashion (📷: @steveeichner) #alaia #azzedinealaia
Azzedine Alaïa, flanked by two of his closest friends, models Stephanie Seymour and Naomi Campbell.
He designed Seymour’s dress for her 1995 wedding to Peter Brant, and treated Campbell (who famously called him Papa), like a daughter. For more on the legendary designer, tap the link in bio. #wwdfashion #alaia #azzedinealaia
Azzedine Alaïa's “I-did-it-my-way” ethos stood out starkly at a time when brands are experimenting with consumer-facing fashion shows, coed formats and trans-seasonal collections – anything to perk up lackluster sales of ready-to-wear in an age of Insta-everything. “It’s not creation anymore. This becomes a purely industrial approach,” the late designer told WWD in an interview last year. “But anyway, the rhythm of collections is so stupid. It’s unsustainable. There are too many collections.” Read more about the iconic designer’s life and work on wwd.com, link in bio. #wwdfashion #azzedinealaia (📷: @WWD Archive, 1986) #alaia
Sneaker reselling app @goat’s latest exhibit, "The Greatest: New York," tells the story of New York's sneaker culture. To celebrate the exhibit, an intimate crowd gathered on Thursday night at the pop-up gallery space, located at Platform in Culver City, to hear guest speaker and illustrator @esymai talk about her own rise in streetwear and women in the business. "For me I'm just someone who is creative. I like to create things," said Chang. #wwdfashion
Azzedine Alaïa, one of the most iconic couturiers of the modern era whose body-con designs defined Eighties fashion, has died in Paris. The diminutive Tunisian-born designer, known for his structured knitted dresses with fitted waists and impeccably cut, figure-hugging second skin silhouettes was deeply admired by his peers, and counted supermodel Naomi Campbell - his adoptive daughter - among his inner circle, one of a gang of glamazons including Farida Khelfa, Carla Bruni and Stephanie Seymour who became ambassadors of his style. (📷: Alexandre Guirkinger) #wwdblast