Feb 24, 2017
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Gap expects FY comparable sales to rise after two years of decline

Feb 24, 2017

Gap Inc said it expected comparable sales to be flat to up slightly in 2017, reversing two straight years of declines, indicating that the apparel chain's turnaround efforts are gaining momentum.

The company's shares were marginally up at $24.10 in after-market trading on Thursday. They had closed down 3.6 percent in regular trading.

Under Chief Executive Officer Art Peck, Gap has been looking to replicate the success of its low-end Old Navy brand at its Gap and Banana Republic businesses.

Gap has improved its product lines, maintained a leaner inventory and reined in costs as part of the initiative.

The efforts are paying off, with the company reporting flat same-store sales at its Gap brand, ending nearly three years of quarterly declines, and a rise of 5 percent at Old Navy, the company's biggest brand by revenue.

A flat comparable sales and earnings forecast could be seen as a relative win but that is not the picture of a growing business, Instinet analyst Simeon Siegel told Reuters.

Like other traditional apparel retailers, Gap is also battling shoppers' changing preferences as many turn to online retailers or buy at fast-fashion chains such as H&M and Inditex'sZara that offer trendier clothes at cheaper prices.

The company said it expected to open about 40 company-operated stores in 2017, focusing on Athleta and Old Navy locations.

"I'm bullish on Athleta and I'm bullish on the brand's growth prospects," Gap Chief Executive Art Peck said on an earnings call with analysts.

Athleta, launched in 1998, provides fitness apparel for women including swimwear and yoga clothing. Gap does not break out Athleta sales.

"Athleta plays in one of the few areas within retail that is still showing growth and the company continues to capitalize on that opportunity," analyst Siegel said.

Gap's net sales rose 1 percent to $4.43 billion in the fourth quarter ended Jan. 28, the first sales increase after seven straight quarterly declines.

Analysts on average had expected revenue of $4.39 billion, according to Thomson Reuters I/B/E/S.

Gap's net income rose to $220 million, or 55 cents per share, from $214 million, or 53 cents per share, a year earlier.

Excluding items, the company earned 51 cents per share, in-line with analysts' average estimate.

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