The operator of Gap, Banana Republic, Old Navy and Athleta reported a decline in net sales of 2 percent to $3.90 billion from $3.98 billion for the prior year period, slightly missing analyst estimates of $3.93 billion. Excluding the impact of currency fluctuations, primarily due to the weakening Japanese yen and Canadian dollar, net sales were about flat with last year.
Net sales at Gap Global fell by 6.8% to $1.36 billion, while Old Navy Global net sales edged up by 3.2% to $1.5 billion, and Banana Republic Global net sales fell 2.3% to $563 million. Sales at Athleta’s 111 North American stores remain relatively small and, together with those of Intermix’s 43 North American stores, fell 3.4% to $177 million.
Comparable sales for the second quarter of fiscal year 2015 were down 2 percent. While Old Navy Global comps rose by 3 percent, Gap Global comps fell by 6 percent and Banana Republic Global fell 4 percent.
Gross margin fell by 200 basis points to 37.4% of revenue, negatively impacted by the west coast ports situation and foreign exchange.
Net income declined 34 percent to $113 million, or $0.52 per diluted share, from $332 million, or $0.75 per diluted share, in the prior year period. Foreign exchange had a $0.06 per share negative impact on earnings. Adjusting for costs for the strategic actions being taken to turn around the Gap brand, earnings were $0.64 per share, consisted with analyst expectations.
The company reported that Old Navy delivered another quarter of positive comparable sales on top of three consecutive years of growth, demonstrating the continued success of its demand-driven and trend-predictive product pipeline in delivering aspirational collections that customers love. CEO Art Peck told analysts that Old Navy has gained roughly $1 billion dollars of market share over the past three years. Other divisions within the company are using some of Old Navy’s success factors, like platforming fabric and building more responsive capabilities, as a template.
Gap brand continues to make progress against its strategic actions, including right-sizing its North America store count to create a smaller, more productive fleet of stores, and implementing a clear, on-brand product aesthetic framework and faster, more responsive operating model.
The company is also continuing to pursue its strategy to integrate physical and digital shopping experiences, redefining how customers shop and engage with Gap Inc.’s portfolio of brands, including its Reserve in Store and Order in Store services to offer more customers access to expanded inventories including broader size, color and style selections.
The company reaffirmed its full-year adjusted earnings per share guidance to be in the range of $2.75 to $2.80.
“I remain confident in our strategies to improve business performance and drive loyalty going forward,” said Peck. “Our evolving product operating model is laying the foundation to more consistently deliver on-trend product collections across our portfolio.”
As of Aug. 1, the company operated a total of 3,309 company-owned stores and 442 franchise stores (including in the Middle East and the Philippines). Of the total 3,751 stores, 1,013 are Old Navy North America, 943 are Gap North America, and 614 are Banana Republic North America. In Asia, there are 286 Gap stores, 51 Old Navy and 48 Banana Republic stores. The company closed 30 Gap stores in the first half of 2015, and, as previously announced, is on target to close another 140 stores this year.