Aug 19, 2016
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Gap's profit forecast misses as Banana Republic remains weak

Aug 19, 2016

Gap Inc forecast a full-year profit below analysts' estimates as the apparel retailer struggles to attract shoppers to its Banana Republic stores.


The company has been working on refreshing its Banana Republic line of clothing, but comparable sales at the company's third-biggest brand fell for the sixth straight quarter as its merchandise did not resonate with shoppers.

"The assortment is at the heart of Banana's issues and symbolizes a brand that has simply lost its way," Neil Saunders, chief executive of research firm Conlumino, said.

"Customers are confused and, of course, increasingly unwilling to pay the premium that Banana once commanded."

Gap forecast a full-year adjusted profit of $1.87-$1.92 per share. The company had earlier forecast a profit of about $1.92.

Analysts on average were expecting earnings of $1.96, according to Thomson Reuters I/B/E/S.


Gap has also been trying to reduce promotions and sell more merchandise at full price. Chic and trendy clothes at lower prices from off-price, online and fast-fashion retailers such as H&M (HMb.ST), Forever 21 and Inditex's (ITX.MC) Zara have lured away shoppers looking for deeper discounts.

The company's merchandise margins increased in the second quarter, Chief Financial Officer Sabrina Simmons said on a post-earnings conference call.

San Francisco-based Gap has also been controlling inventories and shortening production times as it attempts to replicate the success of its Old Navy brand at its Gap and Banana Republic chains.

"After a string of quarters with merchandise margins declines, Q2 represented a turning point, driven by healthy Old Navy selling," Nomura analyst Simeon Siegel said.

The company's net income fell to $125 million, or 31 cents per share, in the second quarter ended July 30, from $219 million, or 52 cents per share, a year earlier.

Excluding items, the company earned 60 cents per share, beating the average analyst estimate of 59 cents, according to Thomson Reuters I/B/E/S.

Net sales were unchanged from the $3.85 billion the company provided on Aug. 8.

Shares of Gap, which also owns the Athleta and Intermix clothing brands, were down 0.82 percent in after-hours trading. Up to Thursday's close of $25.88, the stock had lost nearly a quarter of its value in the last 12 months.

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