After three quarters of losses, Gap reported its second consecutive profitable quarter late Thursday and, while earnings were down, they came in above expectations.
The San Francisco-based firm, the largest specialty apparel retailer in the nation, said late Thursday that it managed to eke out a profit of $56.8 million, or 6 cents a diluted share, for the second quarter ended Aug. 3. However, that is 36.7 percent lower than year-ago results of $89.8 million, or 10 cents.
Sales for the quarter notched up 0.7 percent to $3.27 billion from $3.25 billion. Comps decreased 7 percent on top of a 9 percent drop last year. All divisions landed in negative comp territory — Gap, 13 percent; Banana Republic, 5 percent, and Old Navy, 1 percent. Sales productivity per square foot fell to $86 from $94.
"I am pleased with the changes we made and the progress we are now seeing in the brands," Millard "Mickey" Drexler, Gap Inc. president and chief executive, said on a conference call. "The merchandise is more balanced and the inventory is more in tune with what the customer expects. We feel good about how the stores look and customers tell us they like what they see and we feel comfortable we are heading in the right direction."
Drexler announced in May that, upon appointment of his successor, he would leave the firm that he built into an American institution after 19 years.
Last week the company announced that despite the higher-than-expected drop in July comparable store-sales, its 28th consecutive decline, it raised its forecast to range between 4 and 5 cents. Accordingly, analysts raised their guidance to 5 cents from 3 cents.
Gap is betting on its fall assortment to work as inventories are expected to increase over last year’s depressed levels. Inventories ended the quarter down 14 percent at $1.9 billion, helping to lift merchandise margins at Gap’s three U.S. divisions, but are planned more conservatively for the balance of the year. Third-quarter stocks should be down in the low-single digits and fourth quarter’s up a similar amount.
Gap has seen the same early-August softness as other specialty retailers and currently trails expectations for the month. It’s hoped that its new TV commercials and magazine ads will help its sales plight, and it plans to continue to run sales events to stimulate traffic.Struggling to regain its once sure footing after two years of declines, Gap will be waging battle against a sluggish economy at the same time that it comes up against easier sales and comp comparisons in the back half of the fiscal year.
Last week, Gap unveiled its "For Every Generation" global marketing campaign, focusing on its heritage as an iconic brand. In addition to a mix of spreads and multi-page inserts in magazines and newspapers, Gap Thursday night began a television campaign directed by Peter Lindbergh. The eight 30-second spots each feature a specific jeans fit.
During the second quarter, Gap increased its square footage by 8.7 percent, ending the quarter with 3,139 locations containing 4,261 nameplates. Heidi Kunz, chief financial officer, said she is expecting square footage to grow 3 percent for the year.
Speaking of his new role as president of Gap brand, Gary Muto, said, "We remain confident in the overall direction of the merchandise assortment. Getting the product right is my number-one priority."
For the first half, net income plummeted 54.5 percent to $93.5 million, or 11 cents a diluted share, compared to income of $205.2 million, or 23 cents. Sales sank 4.1 percent to $6.16 billion from $6.42 billion
"Although our business is currently pressured by continued negative traffic trends, we believe we’ve achieved much of what we set out to do strategically in the first half of the year," Drexler said in a statement. "The foundation is in place for ongoing improvement at each of our brands. Our merchandise now reflects the quality and style our customers expect from us."
EXCLUSIVE: @tomford is opening its first-ever beauty store. The boutique, which opens November 20 in London’s Covent Gardens, was designed with the over the top glam Ford is known for. Read the full story on WWD.com, link in bio. #wwdbeauty #wwdnews (📷: Simon Wagner) #TomFordBeauty
New York-based DJ @harleyvnewton threw a party to celebrate the holiday collection of her dress and pajama line @hvn at the Ladurée Beverly Hills. It Girls @katebosworth, @rashidajones and more joined in on the fun, which included cocktails, croque monsieur sandwiches and a photo booth. #wwdfashion (📷: Owen Kolasinski/BFA.com)
For the holidays, @Burberry partnered with 20-year-old artist @blondeymccoy on a series of three outdoor murals in downtown Manhattan. The murals are McCoy’s interpretation of a Christmas eve party, the idea of charity and the spirit of family. His third mural, pictured here, is the most personal. The image depicts McCoy’s grandparents and father in London’s Trafalgar Square in the Seventies. “My work often features lots of sentimental objects.” #wwdeye
For spring 2018, designers applied bold colors and cartoonish motifs on everything from sneakers and belts to key chains. See all the top men’s accessories trends on WWD.com. #wwdtrends (📷: George Chinsee; Prop Styling by @rnasti; Market Editor: @luiscampuzano)
The @dior-sponsored @guggenheim international gala pre-party has a history of drawing cool-girl musical acts to serenade the crowd –– and last night was no exception. @haimtheband performed songs both new and old, and lured a star-studded audience with the likes of Rebecca Hall, Kate Mara, Mamoudou Athie and more. #wwdeye (📷: @lexieblacklock)
In a partnership between the @metopera and the @englishnationalopera, “Marnie” was born. The opera, with costumes sponsored by @mrporterlive, is an adaptation of the 1961 thriller by Winston Graham. Arianne Phillips, who created the costumes, is no rookie: She’s styled Madonna for her tours and created costumes for a myriad of films in the past. Read WWD’s interview with Phillips, where she talks about her inspiration for the opera’s costumes on WWD.com #wwdfashion
@barneysnyc took a different approach to their holiday windows this year. Instead of Christmas decor, Barneys tapped @thehaasbrothers to tell a story of positivity, gratitude and inclusivity via heartwarming silliness and humor. “It’s about kids and it’s about coming together and being family and loving each other,” said Simon Haas. #wwdfashion (📷: @joshuascottphoto)
Beauty influencer @kandeejohnson makes her foray into hair care with a collaboration with @ogx_beauty — making it the first time that OGX has teamed up for a product creation. The collab includes shampoos and conditioners in three scents. At 39 and a mom, Johnson is a different profile than the emerging social media stars, but is considered one of the pioneers of the digital beauty influencer world. Read WWD’s interview with her on wwd.com, including the strangest beauty product she’s ever tried #wwdbeauty