Gap Inc. Reports Third Quarter Results

Gap Inc. (NYSE: GPS) today reported results for the third quarter of fiscal year 2016. On a reported basis, Gap Inc.'s third quarter fiscal year 2016 diluted earnings per share were $0.51. On an adjusted basis, the company's diluted earnings per share were $0.60, excluding a $0.09 impact from restructuring costs related to store closure and streamlining measures previously announced on May 19, 2016. Please see the reconciliation of adjusted diluted earnings per share, a non-GAAP financial measure, from the GAAP financial measure in the table at the end of this press release.

"I'm pleased to see improved product across our brands, as well as areas of healthier merchandise margins, even against the backdrop of challenging traffic trends during the quarter," said Art Peck, chief executive officer, Gap Inc.

"As we move into the holiday season, our teams are sharply focused on execution and delivering great experiences across the portfolio," Peck continued. "Looking forward, we remain dedicated to utilizing our scale advantage in supply chain, as well as through knowledge sharing, in order to drive product innovation across brands and categories."

Business Updates
  • The merchandise margin rate for the third quarter of fiscal year 2016 was up 220 basis points compared with the same quarter last year, primarily driven by Old Navy.
  • As previously reported, Gap Inc. experienced a fire in a building located on its Fishkill, New York distribution center campus on August 29, 2016. The company activated contingency plans designed to help mitigate the overall impact to the business, including leveraging its North American network of distribution centers and ship-from-store capabilities, as well as a temporary fulfillment site established on the Fishkill campus.
  • The company's largest global brand, Old Navy, delivered positive 3 percent comparable sales results during the third quarter, building on its quarter-over-quarter improvement in fiscal year 2016. Additionally, the brand recently announced its holiday strategy, inclusive of its Instant Happy sweepstakes, as well as several in-store experiences that will engage customers throughout the season.
  • The company's namesake brand continued on its path to transform its product-to-market processes, designed to consistently deliver on-brand product collections. For the 2016 holiday season, Gap's Share Your Gift campaign is engaging customers across various platforms, including TV, digital and social.
  • The company's Athleta brand continued to build upon its success as a performance and lifestyle brand, growing its footprint to 130 stores at the end of the third quarter of fiscal year 2016. Athleta also continued to drive innovation across its product collections with the launch of Sculptek, which leverages new stretch fiber technology that sculpts and supports.

Third Quarter 2016 Comparable Sales Results

Gap Inc.'s comparable sales for the third quarter of fiscal year 2016 were down 3 percent, including an estimated negative impact from the Fishkill distribution center fire of approximately 2 percentage points, versus a 2 percent decrease last year. Comparable sales by global brand for the third quarter were as follows:
  • Gap Global: negative 8 percent, including an estimated negative impact from the Fishkill distribution center fire of approximately 4 percentage points, versus negative 4 percent last year
  • Banana Republic Global: negative 8 percent, including an estimated negative impact from the Fishkill distribution center fire of approximately 2 percentage points, versus negative 12 percent last year
  • Old Navy Global: positive 3 percent, including an estimated negative impact from the Fishkill distribution center fire of approximately 1 percentage point, versus positive 4 percent last year

Third Quarter 2016 Net Sales Results

For the third quarter of fiscal year 2016, Gap Inc.'s net sales decreased 2 percent to $3.80 billion compared with $3.86 billion for the third quarter last year.

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