Gap, Inc. (GPS) Oct. Comps Fell 1%; Prelim. Q3 adj.-EPS Tops Views

Gap Inc. (NYSE: GPS) reported that net sales for the four-week period ended October 29, 2016 were $1.20 billion, or flat when compared with the four-week period ended October 31, 2015. For the third quarter of fiscal year 2016, Gap Inc.’s net sales were $3.80 billion compared with $3.86 billion for the third quarter of last year.

“As we close out the quarter, we are pleased to see a continued positive customer response to our Old Navy product collections,” said Sabrina Simmons, chief financial officer, Gap Inc.

October Comparable Sales Results

Gap Inc.’s comparable sales for October 2016 were down 1 percent versus a 3 percent decrease last year. The company estimated that the fire, which occurred in a building on its Fishkill, New York distribution center campus, negatively impacted Gap Inc.’s October 2016 comparable sales by approximately 3 percentage points.

Comparable sales by global brand for October 2016 were as follows:

• Gap Global: negative 7 percent, including an estimated negative impact from the Fishkill distribution center fire of approximately 5 percentage points, versus negative 4 percent last year
• Banana Republic Global: negative 4 percent, including an estimated negative impact from the Fishkill distribution center fire of approximately 4 percentage points, versus negative 15 percent last year
• Old Navy Global: positive 3 percent, including an estimated negative impact from the Fishkill distribution center fire of approximately 1 percentage point, versus positive 2 percent last year

The company noted that October merchandise margin rates actualized significantly higher than previously expected, which more than offset the estimated earnings impact from lost sales and increased logistics costs during the month that resulted from the Fishkill distribution center fire.

Third Quarter Comparable Sales Results

Gap Inc.’s comparable sales for the third quarter of fiscal year 2016 were down 3 percent, including an estimated negative impact from the Fishkill distribution center fire of approximately 2 percentage points, versus a 2 percent decrease last year.

Comparable sales by global brand for the third quarter of fiscal year 2016 were as follows:

• Gap Global: negative 8 percent, including an estimated negative impact from the Fishkill distribution center fire of approximately 4 percentage points, versus negative 4 percent last year
• Banana Republic Global: negative 8 percent, including an estimated negative impact from the Fishkill distribution center fire of approximately 2 percentage points, versus negative 12 percent last year
• Old Navy Global: positive 3 percent, including an estimated negative impact from the Fishkill distribution center fire of approximately 1 percentage point, versus positive 4 percent last year

Third Quarter Guidance

On a reported basis, the company expects its diluted earnings per share for the third quarter of fiscal year 2016 to be in the range of $0.50 to $0.51.

Excluding the $0.09 negative impact associated with its previously announced store closure and streamlining measures, which includes the impact from a higher tax rate, the company expects its adjusted diluted earnings per share to be in the range of $0.59 to $0.60 for the third quarter of fiscal year 2016. Please see the reconciliation of adjusted diluted earnings per share, a non-GAAP financial measure, from the GAAP financial measure in the table at the end of this press release.

*** The Street sees Q3 EPS of $0.53.

Additional insight into Gap Inc.’s sales performance is available by calling 1-800-GAP-NEWS (1-800-427-6397). International callers may call 706-902-4949. The recording will be available at approximately 1:15 p.m. Pacific Time on November 7, 2016 and available for replay until 1:15 p.m. Pacific Time on November 11, 2016.

Third Quarter Earnings

Gap Inc. will release its third quarter earnings results via press release on November 17, 2016 at 1:15 p.m. Pacific Time. In addition, the company will host a summary of Gap Inc.’s third quarter results during a live conference call and webcast on November 17, 2016 from approximately 1:30 p.m. to 2:15 p.m. Pacific Time. The conference call can be accessed by calling 1-855-5000-GPS or 1-855-500-0477 (participant passcode: 5419872). International callers may dial 913-643-0954. The webcast can be accessed at www.gapinc.com.

November Sales

The company will report November sales at 1:15 p.m. Pacific Time on December 1, 2016.

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