Gap's Recovery Short-Lived as Sales Decline in July

4% Drop at Gap, 14% Plunge at Banana Republic

Published on .

Gap, the biggest U.S. apparel-focused retailer, fell in early trading after comparable sales last month missed analysts' estimates and the company provided some cautious commentary on the second half of the year.

Same-store sales -- a key benchmark -- dropped 4% in July, the San Francisco-based retailer said in a statement Monday. Analysts had predicted a decline of 1%, according to Retail Metrics. The decline was broad-based, with sales by that measure missing analysts' projections at all of the company's major brands last month.

"Performance was uneven within the quarter, with challenging traffic in May and July," Jack Calandra, senior VP-investor relations, said on a recorded sales call. "As such, we're maintaining a cautious view of the retail environment in the second half."

The results stoked investor concerns that sales won't get a needed boost from the back-to-school and holiday shopping seasons. Chief Executive Officer Art Peck, who took over the job last year, has said results would begin to improve at the Gap and Banana Republic brands this spring, but the recovery has been short-lived. While sales and traffic trends improved in June, they worsened in July, when many shoppers should be stocking up on clothes for the new school year.

"Gap has a conservative view of the second-half retail landscape reflecting volatile traffic," Pamela Quintiliano, an analyst at SunTrust Robinson Humphrey, wrote in a note to clients Monday. "We expect fundamentals to remain challenged given the positive June comp proved to be an anomaly."

On the positive side, second-quarter preliminary earnings ranged from 58 cents to 59 cents a share in the second quarter, excluding the impact of store closures and initiatives to streamline the business. That topped the 48 cents estimated by analysts. Gap is scheduled to report its full second-quarter results on Aug. 18.

Comparable sales plunged 14% at Banana Republic in July, more than the 4.6% decline expected by Retail Metrics. Sales by that measure were flat at Old Navy, missing estimates for a 1.1% increase. Gap's sales slipped 4%, compared with estimates for a 1.5% decrease.

The results mark the 15th monthly same-store sales decline in the past 16 months, according to Ken Perkins, an analyst at Retail Metrics.

"July proved to be difficult for retailers as hot weather, record Amazon Prime Day sales, the distractions of the beach and the Pokémon Go craze weighed on sales," Mr. Perkins wrote in a note to clients after the results.

-- Bloomberg News

Most Popular