Gap (NYSE:GPS) shares increased Friday despite the company posting net losses and declining sales Thursday for its most recent quarter, as investors cheered Gap’s big improvement in its margins thanks to reduced promotions and lower air freight expenses.
Comparable sales fell 3% for Gap to match the consensus expectation. Store sales were down 4% during the quarter and online sales fell off 9% from last year's level. The Old Navy saw a comparable sales drop of 1% during the quarter and Gap brand comparable sales were up 1%. Comparable sales fell 8% for the Banana Republic chain.
Gross margin was 37.2% of sales vs. 34.6% consensus. Merchandise margin during the quarter was up 610 basis points due to lower air freight expense and improved promotional activity in the quarter, partially offset by inflationary cost headwinds.
Gap ended the quarter with a cash position of $1.2 Billion and inventory of $2.3B (-27% Y/Y). Capital expenditures were $117 Million during the quarter.
On the guidance front, Gap said Q2 sales could decrease in the mid to high-single digit range compared to last year. Gross margin is expected to expand in Q2 and for the full year.
GPS shares captured 73 cents, or 9.8%, to $8.14.
