Gap Cuts Forecast Ahead of Holiday Shopping

Features Dow Jones Newswires

Gap Inc. cut its earnings guidance for the year ahead of the crucial holiday selling season, even as the apparel retailer's earnings topped expectations for the November quarter.

Continue Reading Below

For the year ending in January, Gap lowered its per-share earnings estimate to $2.73 to $2.78, from its previous estimate for $2.95 to $3. Gap also cut its capital spending outlook to $700 million, a decrease of $50 million.

"As we move into the holiday season, our teams are focused on delivering unique customer experiences which will differentiate our portfolio of brands in the marketplace," Chairman and Chief Executive Glenn Murphy said in a news release.

The San Francisco retailer has been striving to reinvigorate the its namesake brand. However, a string of sales declines has persisted at the Gap brand, despite the September launch of a much touted merchandise and marketing effort.

In an effort to combat sluggish demand, retailers have continued heavy discounting and promotions to attract shoppers, a practice that resulted in a highly competitive atmosphere and weighed on margins.

Last month, the company said Mr. Murphy would step down next year as CEO of the retailer, where he reversed a long-running sales slump but more recently has struggled to reinvigorate the company's namesake brand. Art Peck, a nine-year veteran who helms Gap's digital division, was tapped as his successor.

Continue Reading Below

For the period ended Nov. 1, Gap reported a profit of $351 million, or 80 cents a share, up from $337 million, or 72 cents a share, a year earlier. The latest period included a benefit of six cents a share, mostly related to foreign-tax credits. The company estimated 78 cents to 79 cents a share earlier this month, topping estimates at the time.

Gap recently reported its sales eased 0.1% to $3.97 billion, while sales, excluding newly opened or closed locations, declined 2% as a drop of 5% at its namesake brand offset growth of 1% at Old Navy. Sales were flat at Banana Republic.

On Thursday, Gap noted sales grew 1%, excluding currency fluctuations, and the stronger dollar had a net negative impact of about $31 million. The retailer recorded about 24% of its sales revenue abroad in the latest period. Total online sales rose 5.4% to $621 million.

Operating margin declined to 13.9% from 14.5%.

At quarter's end, inventory dollars per store fell 2% from a year earlier, compared with expectations for an increase in the low-single digits on a percentage basis.