All things considered, you've got to hand it to Gap Inc. (GPS 23.19) for its first quarter performance. The results the mall-based apparel retailer delivered weren't impressive in an absolute sense, yet they certainly stood out favorably in a relative sense.
It certainly helped Gap that it faced an easy comparison to the year-ago period when comparable sales were down 5.0%, yet Gap Inc. did a commendable job of controlling what it can control from an operational standpoint and certainly struck a chord with its value-based merchandise at Old Navy.
The latter unit, which enjoyed an 8% increase in comparable sales, spearheaded a 2% increase in Gap Inc.'s comparable sales for the quarter. The strength there was enough to offset comparable sales declines of 4% at Gap Global and Banana Republic Global, respectively.
The comparable sales travails at Gap Global and Banana Republic underscore the point that Gap Inc. still has work to do in terms of presenting a trend-right product set. Those units were both comping against an easy comparison from last year, which included a 3% decline in comparable sales at Gap Global and an 11% decline in comparable sales at Banana Republic Global.
Old Navy, however, steered Gap Inc. through the first quarter, which was another extremely challenging period for mall-based retailers. At the same time, Gap Inc. did a good job of controlling its expenses, its inventory, and its promotional activity.
Its successful operating efforts were evident on the income statement, which featured an expansion in both its gross margin and its operating margin, and on the balance sheet, which revealed inventories were roughly flat versus a year ago.
In the same vein, Gap Inc.'s net sales of $3.44 billion were up about 0.1% and exceeded analysts' average estimate. The same can be said for Gap's diluted earnings per share of $0.36, which were up 13% from the first quarter of fiscal 2016.
Fortunately, Gap Inc. didn't spoil its first quarter report with disappointing guidance. While the retailer acknowledged the retail environment continues to be challenging, it nonetheless reaffirmed its full-year 2017 diluted earnings per share guidance to be in the range of $1.95 to $2.05. The company added that it now expects diluted earnings per share for the first half of the fiscal year to be down mid-single digits versus its prior guidance of down high-single digits.
Gap Inc. also said it continues to expect comparable sales to be flat to up slightly, but that the negative impact of currency fluctuations will likely lead to net sales for the full year that are slightly below the comparable sales guidance range.
The retailer is curbing its store growth plans for the year, noting that its store count will be about flat at the end of fiscal 2017 versus its previous guidance for 40 net store openings. Given the excess store capacity that is negatively affecting the apparel industry, Gap Inc.'s decision to curtail its store growth could be viewed in a positive light.
Shares of GPS traded up as much as 7% in Thursday's after-hours action as its report was viewed in a positive light against a dark backdrop of other apparel companies cutting their earnings and comparable sales guidance. Gap has much work to do to effect its turnaround, yet the first quarter results indicate the company is making some progress with that effort.