Gap Shows Some Surprising Signs Of Strength

Gap Inc., in a departure from recent trends, has reported some modest gains, despite a fire at its New York State fulfillment center early in the month. This doesn’t mean same-store sales aren’t falling — they are down 3 percent (as opposed to 1 percent a year ago) — but they are falling less than expected.

Old Navy saw some actual growth with a 4 percent gain, which is about on par with a 4 percent rise last year.

Gap investors, long starved for good news, were clearly encouraged by the results and gave the stock price a little bump. This pickup is particularly impressive given a fire that damaged about 25 percent of the Poughkeepsie area warehouse building beyond repair and caused major smoke and water damage.

The Fishkill complex where the fire took place is behind about 10 percent of Gap’s nationwide warehouse capacity. That means Gap is expected to notch a 3 percentage-point hit on its October same-store sales with a negative impact on same-store sales expected to be notable through Q4.

Gap sales in the month saw a dip of 10 percent. The impact from the fire is estimated to explain about half of that drop. That is a stark falloff from last year when Gap’s sales were largely flat. Banana Republic suffered a 9 percent decline (3 percent brought on by the fire), which is actually slight better than the 10 percent hit sales were taking at the same time last year.

After the results, Gap shares rose 5.6 percent in after-hours trading, though Retail Metrics Analyst Ken Perkins noted that big declines in the flagship Gap brand are something of a concern since they “marked the division’s worst performance since a 15 percent comp decline in April 2015.”

In a note issued last week, Perkins wrote:

“Gap stores did not look particularly busy to us, and the company ran numerous 40 percent off sales, particularly online, throughout the month.”

Gap CFO Sabrina Simmons took note of Old Navy’s performance in a statement. “While we remain focused on performance across the portfolio, we are pleased to see a strong customer response to Old Navy’s product assortment, which continues to drive positive momentum at our largest brand.”