Gap (GPS) Q2 earnings and sales beat estimates, stocks rise

Shares of The Gap inc. GPS rose more than 8% in the Aug. 25 aftermarket session, following second-quarter fiscal 2022 results, in which both top and bottom results exceeded Zacks’ consensus estimate. . However, both measures have declined year over year. Results were impacted by changing consumer preferences from casual to more formal wear, as well as higher inventories, a challenging macroeconomic environment and high costs.

However, Banana Republic’s strength remained positive. Additionally, sales in July and August improved with lower fuel prices, which led to a slight increase in discretionary spending. The company plans to invest cautiously in marketing, pause hiring plans and slow technology spending.

Over the past three months, the company’s shares are down 10% compared to the industry’s 1.5% drop.

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T2 details

For the fiscal second quarter, adjusted earnings of 8 cents per share beat Zacks’ consensus estimate of a loss of 4 cents. However, the measure compared unfavorably to earnings of 70 cents reported in the second quarter of fiscal 2021.

Net sales were down 8% year over year to $3,857 million. However, the figure exceeded Zacks’ consensus estimate of $3,821 million. Comparable sales (coms) fell 10% on an annual basis.

Digital sales were down 6% year over year, representing 34% of total sales for the quarter under review. The metric jumped 55% from pre-pandemic levels. Store sales were down 10% year over year.

Sales and offsets by brand

Old Navy: Old Navy Global net sales decreased 13% year-over-year to $2,090 million due to size and assortment imbalances, continued inventory delays, headwinds related to product acceptance in certain key categories and moderate demand from low-income consumers. The measure exceeded our estimate of $2,039.8 million. Remuneration also fell by 15% year-on-year.

Global gap: For the second quarter of Fiscal 2022, net sales decreased 10% year-over-year to $881 million, due to category mix imbalances, store closures stores and inflationary pressures. The measure was behind our estimate of $900.8 million. Compensation was down 10% year over year in North America and 7% globally.

banana republic: Net sales rose 9% to $539 million and earnings rose 8%, driven by ongoing shifts in consumer preferences and gains from the relaunch of work-based categories the year before. Sales exceeded our estimate of $514.9 million.

Athlete: Net sales jumped 1% to $344 million for the Athleta brand, while comps fell 8%. Sectoral results achieved through increased awareness, as well as the strength of women’s activity and well-being. This was offset somewhat by the shift in consumer preference from athleisure to casual and professional categories, as well as the acceptance of wellness products during this spring/summer season. We missed our estimate of $354.3 million.

Margins and costs

Adjusted gross profit of $1,388 million reflected a 24% decline from $1,823 million in the prior year quarter. Adjusted gross margin of 36% contracted 730 basis points (bps) year-over-year due to a 700 basis point decline in adjusted commodity margins stemming from a 50 million dollars in air freight. Additionally, huge discounts at Old Navy and rising commodity prices were somewhat offset by lower discounts at Banana Republic.

Adjusted operating profit was $65 million, compared to $428 million in the same quarter last year. Adjusted operating margin contracted 850 basis points year-on-year to 1.7%.

Adjusted operating expenses fell 5.2% year over year to $1,323 million.

Other finance

This Zacks Tier 3 (Hold) company ended the fiscal second quarter with cash and cash equivalents of $708 million, down significantly from $2,375 million in the reporting period. last year. As of July 30, 2022, it had total equity of $2,305 million and long-term debt of $1,485 million.

During the quarter under review, the company used $207 million of cash from operating activities. Gap repurchased 5.7 million shares worth $57 million and paid a dividend of $55 million. GPS also approved a quarterly dividend of 15 cents per share in the quarter under review. He also noted that he would not repurchase any shares for the remainder of fiscal 2022.

In the six months ending July 30, the company’s capital expenditures were $406 million. For fiscal 2022, capital expenditures are expected to be $650 million to improve digital facilities, loyalty, supply chain enhancements and investment in store growth for Old Navy and Athletica.

Store update

As of July 30, 2022, Gap had 3,390 stores in more than 40 countries, including 2,799 company-operated and 591 franchised. For fiscal 2022, GPS plans to close 50 Gap and Banana Republic stores in North America as part of its 350 store closure plan. It also plans to open 30-40 Athleta stores and 20-30 Old Navy stores.

The Gap, Inc. Price, Consensus, and EPS Surprise

The Gap, Inc. Price, Consensus, and EPS Surprise

The Gap, Inc. price-consensus-eps-surprise-chart | Quote from The Gap, Inc.

Directions for the 2022 financial year

Given the current macroeconomic environment and the ongoing CEO transition, management has withdrawn its prior view for fiscal 2022. The company also noted that it is working to reduce inventory, rebalance its assortments to meet the changing needs of consumers and to reassess its investments.

Gap remains optimistic about sales in the second half of fiscal 2022. Air freight costs are expected to decline in the second half of fiscal 2022. Although the company entered the third fiscal quarter with higher inventory , it expects inventory to decline significantly by the end of the fiscal year. fiscal 2022. Gap is taking steps to reduce operating expenses, which are expected to be a headwind in fiscal 2023. Third quarter net income is expected to benefit from the sale of its UK distribution center.

Actions to consider

Here are three top-ranked stocks to consider – General dollar CEO, Costco COST and dollar tree LTDR.

Dollar General, a discount retailer, currently carries a Zacks Rank #2 (Buy). DG forecasts an EPS growth rate of 12.8% over three to five years. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks consensus estimate for Dollar General’s current-year revenue and EPS suggests growth of 10% and 13.4%, respectively, from the figure reported a year ago. Dollar General has a four-quarter earnings surprise of 2.8% on average.

Costco, which operates member warehouses, carries a Zacks rank of No. 2. COST forecasts an EPS growth rate of 9.2% over three to five years.

Zacks’ consensus estimate for Costco’s current-year sales and EPS suggests growth of 15.4% and 18.2%, respectively, over the prior-year period. COST has a surprise on earnings for the last four quarters of 9.7% on average.

Dollar Tree operates a variety of discount retail stores. The stock currently carries a Zacks rank of No. 2. DLTR has an expected EPS growth rate of 15.5% over three to five years.

The Zacks consensus estimate for current-year revenue and EPS from Dollar Tree suggests growth of 6.7% and 40.7%, respectively, from the figure reported a year ago. DLTR has a last four quarter earnings surprise of 13.1% on average.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Sallie R. Loera