Gap cuts full-year sales outlook after Old Navy Q2 miss
Gap lowered its full-year net sales growth forecast on Thursday after Old Navy, its largest brand, posted a steeper-than-expected decline in the second quarter.
The company now expects full-year net sales to grow 1% to 1.5%, down from a prior range of 1% to 2%. The revision reflects Old Navy comparable sales of flat to down 1% for the year, compared with a prior expectation of flat to up 1%, the company said.
Old Navy recorded second-quarter net sales of $2.1 billion, a 4% year-over-year drop, with comparable sales matching that decline. Gap Inc. President and Chief Executive Officer Richard Dickson said executives had anticipated weakness in Old Navy's women's seasonal assortment but were caught off guard by a concurrent slowdown in store traffic, which he attributed partly to marketing shortcomings.
Results at the other brands provided a partial counterweight to Old Navy's struggles. The Gap brand posted a 9% increase in net sales and 10% comparable sales growth. Banana Republic net sales rose 1%, with comparable sales up 3%. Athleta net sales fell 12%, with comparable sales down 12%.
Overall, Gap reported second-quarter net sales of $3.65 billion, down 2% from a year earlier, with comparable sales down 1%. Net income was $501 million, or $1.38 per diluted share, compared with $216 million, or $0.57 per diluted share, a year earlier. On an adjusted basis, stripping out tariff refunds received under the International Emergency Economic Powers Act, diluted earnings per share came to $0.52, topping the $0.48 analysts had expected, according to The Wall Street Journal.
Even as it dialed back its revenue expectations, Gap lifted its full-year adjusted diluted earnings per share target to $2.35, $2.45, a step up from the prior $2.30, $2.40 range. For the third quarter, the company expects net sales to rise 1.5% to 2.5%.
Gap also announced that Michael Francis will take over as Old Navy's president and CEO, effective Nov. 2, succeeding Haio Barbeito. Francis, who came aboard earlier this year to lead marketing shared services at the parent company and serve as Old Navy's chief customer officer, is making the move from those roles.
This is the second consecutive quarter Gap has trimmed its annual sales targets because of Old Navy. The brand posted only 1% comparable sales growth in the first quarter , when executives blamed a spring and summer assortment that failed to connect with shoppers, and cut the full-year net sales growth target to 1% to 2% from a prior range of 2% to 3%.
Gap stock climbed 15% in after-hours trading on Thursday to $23.90.
