Here’s Why Gap Just Cut Its 2015 Profit Forecast

November 20, 2015, 5:36 PM UTC
Photograph by Justin Sullivan — Getty Images

Apparel retailer Gap (GPS) cut its 2015 profit forecast, hurt by a strong dollar and weak sales at its Banana Republic and Gap brands but Chief Executive Arthur Peck said the brands would see a material improvement in spring. Shares, however, are up 6% as of Friday morning.

A series of fashion misses, particularly in women’s merchandise, have turned shoppers away from the Gap brand toward competitors such as American Eagle Outfitters (AEO), H&M, Forever 21 and Inditex’s Zara.

Gap cut its 2015 adjusted profit forecast to $2.38-$2.42 per share from $2.75-$2.80.

Net income fell to $248 million, or 61 cents per share, in the third quarter ended Oct. 31, from $351 million, or 80 cents per share, a year earlier.

Excluding items, the company earned 63 cents per share.

Revenue fell about 3% to $3.86 billion, the company said on Nov. 9.

The strengthening of the dollar, particularly against the Japanese yen and Canadian dollar, hit sales by about $100 million in the third quarter, the company said on Thursday.

The company had earlier expected an impact of $98 million.

Gap received about 23% of net sales from outside the United States in the quarter.

Company-wide comparable sales fell 2%, dragged by a 4% drop at the Gap brand and a 12% decline at the Banana Republic division.

Gap’s Old Navy line, however, has been a bright spot for the company, attracting customers with its affordable-yet-trendy merchandise.

Tight inventory controls and short lead times have also helped the company offer fewer discounts at Old Navy, helping margins.

Comparable sales at Old Navy increased 4% in the third quarter, and sales rose to $1.62 billion.

Up to Thursday’s close of $25.09, Gap’s shares had fallen about 4% this year.