Investors looked right past the impact of a fire at Gap Inc.’s Fishkill, N.Y., distribution center and gave a hearty thumbs-up to the underlying trend in the company’s September sales.
Shares of Gap shot up 15.3 percent to $26.26 in afternoon trading Friday after the company said that it’s 3 percent drop in comparable sales would have been a flat showing without the fire, which authorities ruled as arson.
Wall Street was projecting a steeper comp decline of 4 percent.
Wells Fargo analyst Ike Boruchow noted that Gap is “trying to make progress towards a turnaround” and said Old Navy is “showing some strength” with a 4 percent comp gain in September, while questions remain for Gap (with a 10 percent comp drop) and Banana Republic (down 9 percent).
Boruchow said there’s still plenty of uncertainty ahead for the company despite the better-than-expected performance.
“With the same effect expected on October comps (3 point drag) and a yet unquantified effect on Q4, there remains a great deal of uncertainty regarding how Gap will weather this challenge through the critical holiday season,” he said.
He had company in the feeling that Gap still had plenty of work ahead of it.
Nomura analyst Simeon Siegel noted: “Roughly 12 million units were destroyed in the [distribution center] fire (mostly related to the Gap brand)…. In terms of costs, with the company putting its full omnichannel offerings to the test as they look to fulfill orders from around the company, we’d expect an uptick in logistics costs as they work to move product to fulfill orders, somewhat offset by variable expense on lighter units.”
Gap’s chief executive officer Art Peck told investors last month that the company has made “radical progress” toward demand-based buying.
“As always, we are buying tight, and buying tight to traffic trends,” Peck said. “With more responsive capability season over season, now we have the capacity to put units back in the business close to demand, whereas historically we were struck with our unit buys. So, we’re beginning to be able to mitigate the downside of being overbought, but still have the upside of being able to put unit volume in.
“We see a strong consumer environment out there. There are some signs that denim is coming back. I think the election here in the United States is a level of uncertainty that’s probably unsettling consumers right now. So I would say I’m [somewhat positive] about the back half, but we’re still planning on being able to do business in a tough environment.”