Gap Reports A Weak Outlook For FY 2016

August 19th, 2016 by Trefis Team

Gap Inc (NYSE:GPS) reported its second quarter results on August 18, 2016. While the company beat consensus estimates on both EPS and revenue, both metrics were down as compared to the prior year.

Gap- Q2 2016- 1 Gap- Q2 2016- 2

See our complete analysis for Gap Inc.

Gap reported a 24% fall in operating income and a 43% drop in net income for the second quarter, while also offering a downbeat outlook for the year. The company forecast full-year EPS to be in the $1.87 to $1.92 range, down significantly from its prior expectation of $2.20 to $2.25. As noted by CEO Art Peck, the pace of improvement in the business remains unsatisfying, but the company shows signs of progress. This was demonstrated in the healthier merchandise margins, reflecting reduced promotions and markdowns. Gap has also been focusing on controlling inventories and shortening production times, as it is striving to replicate the success of its Old Navy brand at its namesake brand and at Banana Republic. The company has been attempting to refresh its Banana Republic line, with little success however, reflected in a sixth straight quarter comparable store sales decline.

The company’s Athleta brand, which targets the athleisure space, offers a good opportunity for growth, and the company is aiming to use this opportunity in Gap and Old Navy, by introducing technical innovation into ready-to-wear. Besides this, Gap is also introducing stain-resistant clothing, adding more stretch in its men’s lines, and testing smaller-sized Old Navy stores. The company had earlier announced plans to shut down 75 Old Navy and Banana Republic stores outside North America, while at the same time focusing on areas which have the greatest potential for success.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Gap Inc
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