Gap stumbles as namesake brand's struggles continue

Apparel retailer Gap Inc reported quarterly same-store sales on Thursday that missed analysts’ estimates as its namesake brand struggled to clear excess inventory in a quarter marred by an unusually long winter.

Shares of the company, which also owns Old Navy and Banana Republic, fell 8 percent in extended trading after the company’s first-quarter profit fell well below expectations.

The results signaled that the company is still some way away from reviving the Gap brand, which has struggled to keep pace with fast-fashion rivals such as H&M and Forever 21 and tackle the dominance of Amazon.com.

Though Chief Executive Officer Art Peck has pushed hard to bring styles to stores faster like fast-fashion chains, the company has failed to capture the imagination of shoppers like it had done a decade ago.

Peck fired GAP brand President Jeff Kirwan earlier this year for poor operating performance and is yet to find a permanent replacement.

“The quarter did present some challenges. Some are largely expected like the Gap brand operating issues, and others were less predictable, like the unseasonably cold and snowy weather,” Chief Financial Officer Teri List-Stoll said

Sales at Gap branded stores open for at least a year sunk 4 percent, widely missing analysts expectations of a 0.4 percent drop, according to Thomson Reuters I/B/E/S.

Even its strong performing Old Navy business posted a lower-than-expected 3 percent rise in same-store sales, missing estimates for the first time in four quarters.

Inventories in the quarter rose 3.7 percent from a year earlier, mainly due to Gap merchandise stuck on shelves and in warehouses.

“(Gap) inventory is not perfect. But we took a significant one-time correction to get it done and get it behind us,” Peck said on a post-earnings call.

Gross margins dropped 120 basis points, excluding new accounting rules, in the quarter. The company, however, expects pressure on margins to ease in the current quarter.

Overall same-store sales rose 1 percent in the three months ended May 5, while analysts were expecting a 1.67 percent increase.

Net income rose to $164 million, or 42 cents per share, in the reported quarter from $143 million, or 36 cents per share, a year earlier.

Excluding items, earnings were 42 cents per share, 4 cents below Wall Street estimates.

Total revenue rose to $3.78 billion and beat the average estimate of $3.61 billion, due to strength in its Banana Republic brand.