How Did Gap Inc. Perform In Q4 2017?

by Trefis Team
Gap Inc.
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Old Navy leads Gap Inc.‘s (NYSE:GPS) turnaround yet again, posting a splendid 9% comparable sales growth for the quarter, helping the company post their first sales growth since 2013. Gap’s other brands also moved away from the negative territory, with Banana Republic reporting a 1% comps growth and its namesake brand noting flat sales. The overall comps growth of 5% beat consensus expectations of 1.2%, a factor that helped the company surpass analysts’ estimates for revenue and EPS for the fourth quarter. Gap has made a considerable effort to increase the speed to market of its merchandise and improve its e-commerce capabilities in order to drive traffic. The company’s impressive performance in the holiday quarter reflects growing consumer confidence and a boost in spending amid the tax cuts. Looking ahead, Gap is aiming for its comparable sales to be flat to up slightly in FY 2018, and EPS to fall in a range of $2.55 to $2.70, which came in above analysts’ expectations of $2.34. Below, we’ll highlight the key areas for Gap Inc. to focus on.

We have a $35 price estimate for Gap Inc., which is slightly higher than the current market price. The charts have been made using our new, interactive platform. You can modify the different driver assumptions by clicking here to gauge their impact on the price and EPS estimate for Gap Inc.

1. Old Navy – The segment surpassed $7.2 billion in sales in FY 2017, contributing to nearly half of the company’s total sales, and is “the fastest-growing major apparel brand in the U.S.”  The fact that the brand’s merchandise tends to be skewed towards the affordable segment has worked in its favor. Seeing its impressive performance, Gap has accelerated Old Navy store openings, with over 30 opened in FY 2017. The company feels the brand remains under-penetrated when compared with its peers, and hence, plans to double the store openings in the current financial year.

2. Athleta – According to the NPD group, the activewear industry is the “primary driver of growth opportunity” for the apparel industry. Sales in this category increased 2%, valuing the market at roughly $48 billion in 2017. Hence, it is no surprise that Gap’s Athleta brand has been performing well, in fact, at a much faster rate than that of the industry. The brand moved from mid-teens sales growth in the first half of the year to mid-20s in the back half. The active-business of Gap and Old Navy brands also delivered high single-digit growth in 2017. In line with its growth strategy detailed during FY 2017, the company expects store openings to be focused on Athleta and Old Navy, with closures weighted toward Gap and Banana Republic.

3. Online Business – The online and mobile business is the place to be these days, and Gap has ensured its presence is felt in the space. The company has one platform for all of its brands, ensuring customers can purchase items for any of them in one place. This has also ensured its new brands get the recognition that would not have been possible if they had had a separate web presence. An upshot of this is that the company was able to deliver 30% growth from its online channel in the fourth quarter, and was able to beat its own target of reaching $3 billion in online revenues in FY 2017 by over $100 million. The company has also focused its investment into the native mobile apps and on improving site speed.

See our complete analysis for Gap Inc.

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