Gap Inc.’s stock soared 8.8 percent in after-hours trading as the company turned in solid fourth-quarter sales, driven by a particularly strong showing at Old Navy. The firm’s fourth-quarter sales jumped 7.9 percent to $4.78 billion.
Those gains were driven by a 9 percent comparable sales increase at Old Navy and a 1 percent comp rise at Banana Republic. The flagship Gap business comped flat for the quarter.
Gap’s net income for the quarter ended Feb. 3 slipped 6.8 percent to $205 million, or 52 cents a diluted share. Adjusted earnings tallied 61 cents a share, coming in 3 cents ahead of the 58 cents analysts expected.
Art Peck, president and chief executive officer, touted the Old Navy business to analysts on a conference call.
“During fiscal year 2017, Old Navy grew 6 percent and surpassed $7.2 billion in sales,” Peck said. “Old Navy is the fastest-growing major apparel brand in the U.S. among major retailers. The brand continues to win by focusing on loyalty categories, delivering on assortment with clear filters focused on fit, quality and value, and I have to point out that more than half of Old Navy’s assortment sits on our responsive capabilities, allowing us to feed units into the business, minimizing risk and maximizing margin and successfully chasing market share opportunities. Nearly all categories comped positively this last year, and importantly, both stores and online saw strong top line and bottom line growth.”
To capitalize on that strength Old Navy store openings have been accelerated, but the company overall is being more careful with its real estate.
“We will be investing selectively in the disciplined store remodeling program as well as in store technology,” Peck said. “Based on testing we are conducting, these investments yield attractive returns through both improved labor productivity and customer experience. Having said that, across the industry, and we are no exception, there are problems with stores in the wrong location, not priced to market or oversized for current customer demand.”
The goal is to build a more productive company.
Chief financial officer Teri List-Stoll noted: “We are positioning the company for long-term growth. In addition to leveraging productivity initiatives to fund investments in the business, recent tax reform changes provide a meaningful increase in future earnings.”
For the full year, Gap’s net profits rose 25.4 percent to $848 million, or $2.14 a diluted share, as sales gained 2.2 percent to $15.86 billion.
This year, Gap is looking for earnings per share of $2.55 to $2.70 a diluted share while comp sales range from flat to up slightly.
Given the windfall from President Trump’s tax reform package, the firm said capital expenditures would rise from $731 million last year to about $800 million this year from “with a continued focus on transformative infrastructure investments to support its omnichannel and digital strategies, such as information technology and supply chain.”
Gap has been moving to right operations for some time. Most recently, it said Gap brand president Jeff Kirwan was leaving after 15 years at the company. Peck said the brand was healthy, but the division had not seen the “operational excellence and accelerated profit growth that we know is possible at Gap brand.”