Gap’s (NYSE:GPS) Q2 Sales Top Estimates

Clothing and accessories retailer The Gap (NYSE:GPS) reported Q2 CY2024 results topping analysts’ expectations, with revenue up 4.8% year on year to $3.72 billion. It made a GAAP profit of $0.54 per share, improving from its profit of $0.32 per share in the same quarter last year.

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"Gap Inc. delivered another successful quarter, exceeding financial expectations and gaining market share for the 6th consecutive quarter," said President and Chief Executive Officer, Richard Dickson.

Operating under The Gap, Old Navy, Banana Republic, and Athleta brands, The Gap (NYSE:GPS) is an apparel and accessories retailer that sells its own brand of casual clothing to men, women, and children.

Apparel Retailer

Apparel sales are not driven so much by personal needs but by seasons, trends, and innovation, and over the last few decades, the category has shifted meaningfully online. Retailers that once only had brick-and-mortar stores are responding with omnichannel presences. The online shopping experience continues to improve and retail foot traffic in places like shopping malls continues to stall, so the evolution of clothing sellers marches on.

Sales Growth

Gap is larger than most consumer retail companies and benefits from economies of scale, giving it an edge over its competitors.

As you can see below, the company’s revenue has declined over the last four years, dropping 1.6% annually despite opening new stores, indicating that its underperformance was driven by lower sales at existing, established stores.

This quarter, Gap reported decent year-on-year revenue growth of 4.8%, and its $3.72 billion in revenue topped Wall Street’s estimates by 2.5%. Looking ahead, Wall Street expects revenue to decline 1.5% over the next 12 months, a deceleration from this quarter.

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Same-Store Sales

A company’s same-store sales growth shows the year-on-year change in sales for its brick-and-mortar stores that have been open for at least a year, give or take, and e-commerce platform. This is a key performance indicator for retailers because it measures organic growth and demand.

Gap’s demand has been shrinking over the last eight quarters, and on average, its same-store sales have declined by 1.1% year on year. This performance is quite concerning and the company should reconsider its strategy before investing its precious capital into new store buildouts.

In the latest quarter, Gap’s same-store sales rose 3% year on year. This growth was a well-appreciated turnaround from the 6% year-on-year decline it posted 12 months ago, showing the business is regaining momentum.

Key Takeaways from Gap’s Q2 Results

We were impressed by how Gap beat analysts’ revenue, operating profit, and EPS expectations this quarter. Guidance was also solid, with full-year revenue guidance maintained but operating profit guidance raised. Zooming out, we think this was a good quarter with some key areas of upside. The stock remained flat at $24.56 immediately following the results.

So should you invest in Gap right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.