Gap (NYSE: GPS) reported quarterly same-store sales below analysts' estimates on Tuesday, dragged down by another weak performance in its namesake brand, indicating that the apparel retailer needs to double down on efforts to reduce excess inventory and to revive sales.
The Gap brand, struggling with a switch by young shoppers to fast-fashion from rivals such as such as H&M and Inditex Zara, has in recent quarters faced a spike in inventories, largely due to older styles.
To clear the inventories, Gap has been discounting heavily and that has weighed on sales and margins.
Same-store sales at the Gap brand fell 7% in the third quarter, much bigger than the 4% drop analysts had expected.
CEO Art Peck has also shut Gap brand stores and named a new head for the unit earlier this year in a bid to shore up sales.
Peck on the call said "early reads of fourth-quarter product flows are encouraging."
Old Navy, Gap's more affordable brand and a bright spot, also missed comparable sales estimates by a small margin.
Sales rose 4%, while analysts had expected a 4.7% increase. The brand has topped estimates in six of the past eight quarters.
Excluding items, Gap earned 69 cents per share, beating the average estimate by a cent.
Net sales rose 6.5% to $4.09 billion, slightly above the average estimate of $4 billion.
The company cut the top end of its full-year profit forecast to $2.60 per share from $2.70, retaining the lower end at $2.55.
Shares of the San Francisco-based company hiked $1.04, or 4.2%, to $25.70 after Wednesday’s opening bell. They have fallen 27% so far this year.
