Gap (GAP) is showing signs of a comeback.
In Q2, revenue grew 5% to $3.72 billion, compared to estimates of $3.63 billion, while adjusted earnings per share came in at $0.54, compared to estimates of $0.40. Same-store sales jumped 3%, also besting the 2.87% jump expected.
The company temporarily halted its trading on Thursday, after it released its Q2 earnings on its website around 9:30 a.m. ET, then retracted it. It was originally scheduled to report after the market close.
According to a GAP spokesperson, the results were inadvertently posted to the company’s website as a result of administrative error, which prompted it to notify the NYSE and halt trading.
The company then re-released numbers that showed it beat key metrics across the board. Shares are moving higher in intraday trading, up nearly 3%.
The retailer’s stock price has risen by over 10% year to date, compared to its rival Abercrombie & Fitch Co.’s (ANF) 62% jump.
This is the second consecutive quarter of sales growth as it attempts to reinvigorate its brands.
Old Navy and its namesake Gap brand drove growth, with same store sales up 5% and 3%, respectively.
Banana Republic clocked flat sales growth, as the company plans to focus on “fixing the fundamentals” and working to improve its “pricing and assortment architecture.”
Its premium lifestyle brand, Athleta, reported a sales decline of 4%. It expects to return the brand to positive same-store sales growth for the remainder of the year.
CEO Richard Dickson is working on a turnaround of the classic retailer, including a change of its ticker symbol on the New York Stock Exchange last week.
It’s now “GAP”, rather than a nod to the navigation system “GPS,” as Brian Sozzi reported.
“We’ve spent a lot of time driving our strategic priorities, bringing back financial and operational rigor, enabling us to reinvigorate these brands to the extent that we could revitalize them and be part of the cultural conversation,” Dickson, a former COO at toymaker Mattel, told Yahoo Finance.
“Great product, great price, great storytelling, great store experiences. These are all fundamentals that we’re working really hard to fix.”
Gross margin also beat estimates at 42.6%. The company increased its merchandise margin by 410 basis points year-over-year, driven by lower commodity costs and an improved promotional activity, according to the release.
Gap expects net sales to increase slightly in Q3 2023, and for gross margin to expand by 50 to 75 basis points.
Prior to the results, analysts were looking to see if Gap can still succeed in an environment where consumers are strained.
There is “a continued squeeze of the middle-income consumer,” Bernstein analyst Aneesha Sherman told Yahoo Finance.
“It’s consumers in the middle who are being hit time and time again by a combination of inflation, student loan repayment, credit card debt, the complete wipeout of pandemic savings, and no improvement in the overall sentiment. Those consumers are now looking for value … and being more choosy.”
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“We are all working against a backdrop of macroeconomic uncertainty,” Dickson said to Yahoo Finance, adding that while Gap is maintaining caution about how consumers are tracking, “there’s always winners in every space.”
Morgan Stanley analyst Alex Straton, who has an Overweight rating on shares, sees upside for earnings in the second half of the year, given “incremental confidence” in Dickson’s strategy and the turnaround execution.
CFRA analyst Zachary Warring isn’t as optimistic, reiterating a Sell rating in a recent note reflecting “the highly competitive specialty apparel retail market” that’s primarily focused on young people, he wrote.
He said “high sensitivity to economic conditions” and the decline of foot traffic malls could also impact the retailer.
The earnings breakdown
Here’s what Gap reported, compared to what Wall Street expected, per Bloomberg consensus
Adjusted earnings per share: $0.54 versus $0.40
Revenue: $3.72 billion versus $3.63 billion
Same-store sales growth: 3% versus 2.87%
Old Navy: 5.00% versus 4.76%
Gap: 3.00% versus 4.09%
Banana Republic: 0.00% versus 1.62%
Athleta: -4.00% versus -4.03%
The company reiterated that it expects to end 2024 with revenue growth up slightly on a 52-week basis.
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Brooke DiPalma is a senior reporter for Yahoo Finance. Follow her on Twitter at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.
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