Gap Lifts Outlook Ahead of Key Shopping Season

Gap Inc. raised its full-year outlook for sales, with the apparel retailer saying all of its brands are gaining market share.

The operator of Old Navy and Athleta now sees sales up 1.5 percent to 2 percent this fiscal year, versus a previous view that the measure would climb less than 1 percent. Gap also increased its forecast for gross margin, a gauge of profitability, and operating income.

Gap shares rose as much as 8.2 percent in extended trading after the release of results. The stock has risen 5.4 percent this year, below the gain of the S&P 400 Midcap Index.

“We’re running a fundamentally better business than we did last year,” Chief Executive Officer Richard Dickson said in an interview. He added the company’s brands are gaining market share “across categories.”

Gap’s results were mixed, however, for the third quarter ended Nov. 2. Across all brands, comparable sales, which measure stores open for at least a year, rose 1 percent, lower than the 1.7 percent average from analysts surveyed by Bloomberg. Looking at specific chains, Old Navy and Banana Republic also missed Wall Street expectations, while Gap brand stores and Athleta performed better than projected.

Retailers are contending with consumers who, after years of price increases, are now spending a bigger portion of their paychecks on groceries and essential goods. At the same time, warmer-than-normal temperatures in recent months have also eroded apparel sales as shoppers refrain from buying cold-weather garments.

Executives confirmed that the weather was an issue at Old Navy, which is Gap’s biggest revenue generator among its brands. While women’s and men’s performed well, the warmer weather led to fewer sales of coats and outerwear for kids.

Across brands, third-quarter sales rose 2 percent to $3.8 billion, in line with analyst estimates. Sales at physical stores fell 2 percent in the period from a year earlier, while online sales increased 7 percent. Inventory ended the period down 2 percent, with the company citing better management for improved merchandise margin.

Dickson said the company is monitoring potential tariffs on Chinese goods under a new Trump administration and is well positioned with less than 10 percent of the company’s merchandise coming from China. That’s down from 22 percent in 2018.

Chief Financial Officer Katrina O’Connell said that August “was really strong for us because the customer was responding very well to our back-to-school assortment,” which was followed by a dip in September due to warm weather and hurricanes. Performance then improved in October, and Gap is “pleased with the start to the holiday season,” she said.

By Julia Fanzeres

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