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Financial Roundup: Gap Inc. Earnings Spike, Ross Stores’ Sales Above Plan

Gap Inc. shares jump on improved performance and outlook, while Ross Stores increased guidance on strong quarter.

Gap Inc.

In a Nutshell: The company said it continues to expect comparable sales for fiscal year 2017 to be flat to up slightly. Net sales for year are forecast to be slightly below this range, driven by an expected negative impact from foreign currency fluctuations year-over-year, as well as the impact from international closures in fiscal year 2016. Wall Street evidently liked the brighter outlook, sending shares up more than 6 percent to $24.08 in after-hours trading on the New York Stock Exchange.

[Read more on Gap store closings: The Week in Denim: Gap to Close Australian Stores]

The company noted that an increase in adjusted operating expenses was primarily driven by an increase in payroll, as well as investments in digital and customer initiatives that support its long-term growth. Gap Inc. ended the second quarter with 3,642 store locations in 47 countries, of which 3,179 were company-operated, and noted that it expects store count to be about flat at the end of the fiscal year compared to a year earlier.

Sales: Net sales for the second quarter ended July 29 dipped 1.3% to $3.8 billion compared with $3.85 billion for the year-ago period. Gap said the translation of foreign currencies into dollars negatively impacted the net sales in the quarter by about $37 million.

Second quarter comparable sales were up 1 percent versus a 2 percent decrease last year. By brand, comparable sales for Old Navy Global were up 5 percent versus flat sales last year, Gap Global’s fell 1 percent compared to a 3 percent drop a year earlier and Banana Republic Global’s were off 5 percent against a 9 percent decline last year.

Earnings: Net income more than doubled to $271 million in the quarter from $125 million in the year-ago period. In the six months, net income jumped 64.2% to $414 million compared to $252 million last year.

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CEO’s Take: Art Peck, president and chief executive officer, said: “With a third consecutive quarter of comp sales growth, we are seeing our investments in product, customer experience and brand equity begin to pay off. Based on the strength of the first half, we are pleased to increase our full year earnings guidance.”

“As we continue to focus on long-term growth, we are accelerating our strategies that put the customer at the center of everything we do, including a focus on product categories where we have clear differentiation, continued investment in our online and mobile offerings, and taking advantage of our operating scale to drive speed to market, responsiveness to customer demands and efficiency.”

Ross Stores Inc.

In a Nutshell: With sales and earnings rising for the second quarter and first half of the fiscal year, Ross Stores said earnings per share for the 53 weeks ending Feb. 3 are now planned to increase 12 percent to 14 percent to $3.16 to $3.23, on top of a 13 percent gain last year.

The off-price specialist, which had fiscal 2016 revenues of $12.9 billion, credited strong margins on merchandise and sales that came in above plan. The company operates Ross Dress for Less, one of the largest off-price apparel and home fashion chains in the U.S., with 1,384 locations, and 205 dd’s Discounts units.

Sales: Sales in the second quarter ended July 29 rose 8 percent to $3.43 billion from $3.18 billion a year earlier, with comparable store sales up 4 percent. For the six months, sales increased 7 percent to $6.738 billion from $6.27 billion in the year-ago period.

Earnings: Net earnings grew 12.4% to $317 million, compared to $282 million in the prior year. Net earnings for the six months were up 11.3% to $638 million from $573 million last year.

CEO’s Take: Barbara Rentler, company CEO, said, “We are pleased with the better-than-expected growth we delivered in both sales and earnings in the second quarter, especially given our strong multi-year comparisons and today’s volatile retail climate. Operating margin of 14.9% outperformed our projections, mainly due to a combination of higher merchandise margin and leverage on our above-plan sales gains.”