The apparel retail industry is hit hard due to slowing demand in the U.S. and a decline in store traffic as people fulfil their needs by making their purchases at the online stores. This not only gives convenience to the customers, but also because online goods are cheaper. Thus, most of the retailers reported a lackluster quarter since their results were affected by lower demand in its stores.
However, each of them are taking measures to overcome it. Gap (GPS, Financial) is one of the leading apparel retailers, who are undergoing a similar situation. Its third-quarter results were also not up to the mark. The numbers were mixed, as the top line failed to meet the consensus. However, a bright outlook enabled the share prices to surge.
Overview of the quarter
Revenue for the quarter slipped 1% to $3.97 billion, over last year's quarter. The top line was lower than the estimate of $4.02 billion by the analysts. Sales were affected by unfavorable foreign currency movement. Also, the comp sales registered a decline of 2% during the quarter. Further, sales at Gap stores dropped 5%, Old Navy by 1% and Banana Republic was flat for the quarter.
However, the company there were some of the bright spots which boosted sales. The company opened 66 new stores during the quarter, which increased sales. Ecommerce segment did well, owing to the increased popularity of online shopping. Online sales increased by 5.4% to $621 million during the quarter.
The gross margin expanded by 20 basis points to 40.2%, helped by an increase in the merchandise margins. The bottom line, however, surged higher. Earnings jumped 11% to $0.80 per share, over last year. Also, it was higher than the estimate of $0.76 per share.
Efforts to improve the future
The company plans to improve its performance in the future months by putting its strategies in place. Firstly, will be expanding its footprint in China, where it expects an increase Old Navy store. In fact, a total of 185 new stores will be opened during the year, with a special focus on regions such as China, India and Japan. It will open Old Navy stores in the Middle East region also.
Further, it plans to improve its product assortment and ramp up its promotions during the fall, which should help attract customers and revenue grow. Also, it has come up with a new system, which enables customers to browse the company's inventory online and reserve it as per needs. The reserved products can be picked up at the nearest stores later. Promoting such tech-friendly services should help in bringing in more customers to its stores.
In fact, sales have started picking up from November itself. Comp sales in November surged 18% for Old Navy as customers liked the holiday assortment. Also, Banana Republic sales grew 2% during the period.
Final word
Thus, it is clear that the holiday season is ringing the right bells for the apparel retailer. The company should do well in the fall as it improves its collection and make its services better. Also, it increased its dividends and share repurchases, which delighted the investors. With more expansion on the cards, this fashion retailer looks good to go.
