Gap Earnings Squeak Past Estimates, Fanning Turnaround Hopes

  • Sales continue to tumble, but CEO sees ‘signs of progress’
  • Currency fluctuations also weighed on results last quarter

Gap Inc. posted second-quarter earnings that narrowly topped analysts’ estimates, giving hope that the largest apparel-focused U.S. retailer can mount a comeback.

Earnings were 60 cents a share in the quarter, excluding some items, the San Francisco-based company said in a statement Thursday. The company said earlier this month that profit would probably be 58 cent to 59 cents, with analysts pegging their average estimate to the higher figure.

The results suggest that a long-awaited turnaround from Chief Executive Officer Art Peck may finally be gaining traction. A pickup in apparel spending -- especially in Gap’s core denim category -- could help the company fight sluggish mall traffic and heavy discounting. Peck also is paring down the company to save money and refocus on better-performing stores.

“We took critical steps to execute our restructuring plans and to build a more efficient global brand model with greater potential for growth,” he said in the statement. “While I remain unsatisfied with the pace of improvement across the business, I am encouraged by the underlying signs of progress.”

The shares rose as much as 1.9 percent to $26.36 in New York on Friday. The stock had gained 4.8 percent this year through Thursday’s close.

Digging Out

Sales were $3.85 billion in the second quarter, which ended July 30. That matched the preliminary number Gap provided earlier. The company said it expects earnings to be $1.87 to $1.92 a share this year, missing the $1.94 estimated by analysts.

The apparel seller still faces an uphill battle in turning around its three major chains: Gap, Old Navy and Banana Republic. Same-store sales fell 3 percent at Gap and 9 percent at Banana Republic. Old Navy was unchanged in the period.

The strong U.S. dollar also has taken a toll on the chain by reducing the value of its overseas revenue. Currency effects reduced profit last quarter by about 5 cents a share, Gap said.

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