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The company's shares rose nearly 6 percent in trading after the
bell on Thursday.
Gap's same-store sales increased 1 percent in the three months
ended July 29, rising for the third straight quarter. Analysts
were expecting sales to be flat year-over-year, according to
research firm Consensus Metrix.
The results mirror a trend among U.S. retailers: department
stores such as Macy's Inc <M.N> and J.C. Penney Co Inc <JCP.N>
have struggled, while apparel retailers like Ralph Lauren Corp <RL.N>
and Urban Outfitters <URBN.O> have benefited as they better
managed inventory and gave fewer discounts.
Since becoming Gap's chief executive in 2015, Art Peck has
reinvigorated the Old Navy brand, its biggest revenue
contributor, through celebrity tie-ups, social media campaigns
and better styles – dresses, pants, mid-tops and shorts did well
in the latest quarter.
Same-store sales at Old Navy rose 5 percent, beating analysts'
estimate of 3.1 percent. Old Navy's sales have now risen in
seven of the past ten quarters, a bright spot for the company as
its Gap and Banana Republic brands struggle.
Peck has also focused on Gap's supply chain, taking a leaf out
of the book of fast-fashion retailers such as Zara and H&M, by
reducing the time taken to bring latest fashion from the ramp to
stores.
Peck on Thursday held up the swift turnaround time at Athleta,
its active wear brand, as an example of initiatives that have
driven double-digit growth in the brand this year.
"Athleta now has more than half of its bottoms business on
responsive. And by responsive, I mean back in the styles in 8
weeks or less," Peck said in a post-earnings call.
The Gap brand recorded its smallest drop in same-store sales the
past 10 quarters, but Banana Republic's sales fell more than
expected.
The company's total revenue fell 1.4 percent to $3.799 billion,
edging past analysts' estimate of $3.77 billion, according to
Thomson Reuters I/B/E/S.
Gap's net income more than doubled to $271 million, helped by an
insurance-related gain and year-ago restructuring costs.
Excluding the insurance-related gain, Gap's profit of 58 cents
per share easily beat analysts' estimate of 52 cents.
Gap raised its adjusted profit forecast for fiscal 2017 to $2.02
to $2.10 per share from $1.95 to $2.05.
(Reporting by Gayathree Ganesan in Bengaluru; Editing by Savio
D'Souza)
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