A small sales drop is better than a big one.
Sometimes it pays to keep expectations low.
Gap Inc. gps shares shot up nearly 5% on Monday after the retailer released a better than expected October sales report. It was the second month in a row the company’s results were promising, which may be a sign Gap is finally emerging from a protracted period of soft sales.
The clothing retailer has been struggling for the better part of the last two years to adjust to changing shopper tastes, the need to react more quickly to fashion trends, and to the encroachment of fast fashion players like Forever 21.
October’s comparable sales, a metric that strips out the impact of stores opened or closed in the last 12 months, fell 1%. But analysts were expecting a 2% decline, and given the carnage with its results of late, the stock move came as a relief.
What’s really encouraging to investors is that the drop was largely caused by a fire at its Fishkill, N.Y., distribution center back in August. Were it not for that disaster, which disrupted delivery of its clothes to many stores, the company’s comparable sales would have been up 2%, Gap Inc. said.
Old Navy, the company’s largest brand, is also recovering from sluggish sales earlier in the year, with comparable sales up 3%. Still, Gap Inc.’s other two main brands continue to struggle: Gap sales were down 7% (that would have been 5% sans fire), while Banana Republic’s comparable sales slipped 4%. At Banana, sales would have been flat if not for the fire.
Last week, Gap Inc. announced that its long-service finance chief, Sabrina Simmons, would be leaving in February. She joined Gap Inc. in 2001 and was appointed CFO in 2007. CEO Art Peck has called Simmons “critical in establishing Gap Inc.’s capital structure framework and maintaining operating discipline.” Tte two will “work together to ensure an orderly transition in the coming months.”