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Why Gap Shares Surged in Spite of Soft January & Q4 Comps

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Shares of The Gap Inc.GPS were up 3.3% in the afterhours trading session yesterday after the company skewed its fiscal 2015 earnings guidance toward the higher end of its previously projected range. Also, the company provided a robust guidance for the fourth quarter.

The upward revision of guidance came despite a fall in January and fourth-quarter sales, and comparable store sales (comps) results, following dismal holiday sales.

The company reported January net sales of $813 million, which were down 8% from $888 million for the four weeks ended Jan 31, 2015. Comps for the four weeks ended Jan 30, 2016 were down 8% compared with a 3% decline last year. January comps declined due to negative comps reported at all of the company's brands.

Comps at Old Navy Global fell 6% against a 3% rise in the prior-year period. Banana Republic Global's comps were down 17% against a 2% improvement last year. Comps at Gap Global were down 6% against a 9% increase recorded last year.

For the fourth quarter of fiscal 2015, net sales of $4.39 billion represented a 6.8% decline from $4.71 billion reported in the prior-year quarter. Also, sales for the quarter fell short of the Zacks Consensus Estimate of $4.47 billion. On a constant currency basis, sales declined 5%.

Further, comps for the quarter fell 7% against a 2% increase reported in the prior-year quarter. Brand-wise, comps for Gap Global were down 3% compared with a 6% drop last year, while comps for Banana Republic declined 14% against 1% growth a year ago. Also, Old Navy posted an 8% decline in comps compared with 11% growth in the prior-year quarter.

Despite the soft sales results for January and the fourth quarter, the company narrowed its fiscal 2015 earnings guidance, skewing toward the upper end of its previous projection. It now expects earnings for fiscal 2015 in the range of $2.41-$2.42 per share, compared with the previous expectation of $2.38-$2.42. Further, the company anticipates fourth-quarter earnings in the 56-57 cents per share range, considerably above the Zacks Consensus Estimate of 52 cents.

Going forward into fiscal 2016, the company remains encouraged as it prepares to launch new spring collections at its stores.

Apart from Gap, certain other retailers posted their comps data for January. Of these, Rite Aid Corp. RAD and Zumiez Inc. ZUMZ witnessed comps declines of 1.4% and 2.2%, respectively. Also, comps for the Victoria's Secret owner, L Brands Inc. LB declined 2% for January.

Gap, which is scheduled to release its fourth-quarter results on Feb 25, 2016, currently carries a Zacks Rank #3 (Hold). Also, the company will report its February sales on Mar 3.

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ZUMIEZ INC (ZUMZ): Free Stock Analysis Report

GAP INC (GPS): Free Stock Analysis Report

RITE AID CORP (RAD): Free Stock Analysis Report

L BRANDS INC (LB): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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