Gap (GPS 28.80, -3.64) made two-month lows this morning following soft comparable store sales out of the company’s Gap brand stores in the second quarter.
Jumping right into the Q2 performance, Gap reported earnings per share of $0.76 on revenue growth of 7.5% to $4.08 bln (+4% ex-accounting changes). As mentioned, the comparable store sales metric was the story this quarter.
Gap reported Q2 comparable sales growth of 2% compared with a 1% increase last year. By global brand comparable store sales were -- Old Navy Global: positive 5% versus positive 5% last year; Gap Global: negative 5% versus negative 1% last year; and Banana Republic Global: positive 2% versus negative 5% last year. This result for the Gap Global brand was well below what the Street had expected, and partly the reason for the company’s gross margin declines (on an apples-to-apples basis).
Specifically, gross margin were 39.8%, an increase of 90 basis points compared with last year. However, excluding the impact of presentation changes from the adoption of the new revenue recognition standard, gross margins were down 10 basis points to 38.8%, largely due to Gap Brand.
Gap also reaffirmed its full-year diluted earnings per share guidance to be in the range of $2.55-2.70, and continues to expect comparable sales for fiscal year 2018 to be flat to up slightly. Additionally, Gap continues to expect its fiscal year 2018 effective tax rate to be about 26% with capital spending to be approximately $800 mln for fiscal year 2018.
The flagship Gap brand saw disappointing sales in the quarter, driving the stock below both its 50-day simple moving average (31.19) and 200-day (31.50) in the premarket. Shares hold near lows at the moment, down 11.2% after opening 8.6% lower.