November 20, 2018 / 9:30 PM / 19 days ago

Gap's comparable sales miss as namesake brand struggles

(Reuters) - Gap Inc (GPS.N) reported quarterly same-store sales below analysts’ estimates on Tuesday, dragged down by another weak performance in its namesake brand, indicating that the apparel retailer needs to double down on efforts to reduce excess inventory and to revive sales.

A shopper carries a bag from a Gap store as they walk along Fifth Avenue in the Manhattan borough of New York, U.S., November 20, 2016. REUTERS/Mark Kauzlarich

The Gap brand, struggling with a switch by young shoppers to fast-fashion from rivals such as such as H&M (HMb.ST) and Inditex (ITX.MC) Zara, has in recent quarters faced a spike in inventories, largely due to older styles.

To clear the inventories, Gap has been discounting heavily and that has weighed on sales and margins.

Same-store sales at the Gap brand fell 7 percent in the third quarter, much bigger than the 4 percent drop analysts had expected, according to IBES data from Refinitiv.

“Based on current projections, we would expect Gap brand to show sequential progress but still be down for the year,” Chief Financial Officer Teri List-Stoll said on a post-earnings call.

Chief Executive Officer Art Peck has also shut Gap brand stores and named a new head for the unit earlier this year in a bid to shore up sales.

Peck on the call said “early reads of fourth-quarter product flows are encouraging”.

“The problem is that the turnaround is taking a long time and it still is a significant misstep on their part,” said Gabriella Santaniello, founder of retail consultancy A line Partners.

Old Navy, Gap’s more affordable brand and a bright spot, also missed comparable sales estimates by a small margin.

Sales rose 4 percent, while analysts had expected a 4.65 percent increase. The brand has topped estimates in six of the past eight quarters.

Business casual clothing brand Banana Republic topped analysts’ estimates for same-store sales, posting a 2 percent rise compared with average estimate of 0.72 percent gain.

Overall company same-store sales were flat in the three months ended Nov. 3, missing analysts’ average estimate of a 1.09 percent rise.

Excluding items, Gap earned 69 cents per share, beating the average estimate by a cent.

Net sales rose 6.5 percent to $4.09 billion, slightly above the average estimate of $4 billion.

The company cut the top end of its full-year profit forecast to $2.60 per share from $2.70, retaining the lower end at $2.55.

Shares of the San Francisco-based company, which declined 3 percent in regular trading, dropped as much as 2 percent after the bell. They have fallen 27 percent so far this year.

Reporting by Nivedita Balu in Bengaluru; Editing by Sriraj Kalluvila

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