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The Gap (GPS) announced its fourth quarter financial results, which exceeded analysts’ expectations for both sales and final profit. The retail company reported his $4.3 billion in revenue, beating expectations for his $4.21 billion. Additionally, Gap’s adjusted earnings per share were $0.49, beating analysts’ expectations of $0.23 per share.
Yahoo Finance’s Brian Sozzi breaks down the earnings report and his conversation with Gap’s new CEO, Richard Dickson.
For more expert insights and the latest market trends, click here to watch the full episode of Yahoo Finance Live.
video transcript
[LOGO AUDIO]
– Gap just reported fourth-quarter earnings, and those profits beat. The stock came in at $0.49 per share, compared to analysts’ expectations of $0.23 per share. His gross profit margin was 38.9%, which was also much higher than expected.
When we talk about gaps here, we also have to talk about comparable sales. Total revenue was flat in the fourth quarter, but comparable sales were expected to decline. Old Navy’s sales increased by 2% on a comparable basis. The company said it expects net sales to be roughly flat in the first quarter.
So we’re still looking at the numbers here, but we want to bring in Brian Sozzi, who’s been a long-time gap watcher, and I think that’s fair–
Brian Sozzi: critic?
– – To tell.
Brian Sozzi: critic?
– Yes, certainly. And you talked to a CEO who was still relatively new.
Brian Sozzi: Yes, correct. So if you’re looking at these numbers after hours and trying to determine what kind of situation this company is in, perhaps he should look at two things. First, comparable sales in the Old Navy division increased by 2%. This is the largest chain within the Gap portfolio. If Old Navy declines, so will Gap’s stock price.
Continue further down the press release. Comparable sales increased 4%, negative — [? a minus ?] Last year it was down or down by 4%. Gross margin increased 430 basis points (BIPS) year over year. This is a huge gain, mainly because they stopped the promotion. They are reducing their inventory every year. Another retailer with declining inventory.
Now, I shared something that struck me with Gap’s new CEO, Richard Dixon. He’s the person I first met when he was COO at Mattel, the company that reinvigorated the Barbie brand. He’ll probably be the first to shout about Gap’s market share growth in his more than 10 years covering the company. I can’t remember. And he told me that, in fact, they’re seeing signs, very early signs, of a turnaround. Note that Richard only started about 6 months ago. Replenishment of his leadership team has just begun. Just a tiny baby sign of improvement.
He also acknowledged to me that turnarounds don’t happen overnight. Many of the company’s problems are self-inflicted and did not happen overnight. In some cases, this has been going on for his 10 or 15 years, with inefficiencies in the supply chain, problems with the fit, problems with the quality of the product, and even the appearance of the product.
However, there are now little signs of improvement for Gap.But again, there’s a lot more proof they need to do
– Okay. I have a question. How do you solve problems like Athleta?
Brian Sozzi: Hmm.
– Comp sales down 12%.
– It’s the opposite of what Lululemon is doing.
– Listen, I say this as someone who has an Athleta in the closet.
Brian Sozzi: good –
– [INAUDIBLE]
Brian Sozzi: –They introduced a whole new leadership within Athleta. So the retail industry typically takes two to three quarters to get product, merchandising, and marketing out from a new leader or a bunch of new leaders. That’s true. I hope you got a little taste of it. On LinkedIn, specifically through his LinkedIn profile of Richard Dickson, he’s surfing Athleta and you can see some new items starting to hit. I think they just launched their train collection. It seems like there are a lot of things–
– What collection?
Brian Sozzi: train. train. It’s very simple.
– Like training.
Brian Sozzi: Training, yes, training. Importantly, it’s similar to Lululemon. Lululemon is doing well, so that’s a good thing. So if Athleta can compete better with Lululemon, that’s ultimately a good thing.
But Athleta isn’t going to move this stock. They have to –
– right.That’s just a small part [? their business. ?]
Brian Sozzi: They will have to reduce their store base. Richard told me that he doesn’t expect to see any sort of investor day in the near future announcing hundreds of store closures. Maybe it’s a year from now. I do not know. But I think we need to get some of these store bases under control.
– Yeah.
Brian Sozzi: There are over 1,200 Old Navy stores! They have to bring it down.
– Thank you so much, Sozu-san.
Brian Sozzi: I’m glad to be here.
– It was fun talking about the gap again.
Brian Sozzi: yes.
– It seems like a long time ago.
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