Gap rallies after its Old Navy chain sales rebound

Bloomberg

Improvements in Old Navy’s product selection brought a sales surge to Gap Inc.’s biggest chain last month — and the stock’s biggest rally in almost eight years.
The brand’s same-store sales gained 4 percent in September, Gap said. Analysts had projected growth of less than 1 percent, according to Retail Metrics. The results helped offset an overall sales decline, which were worsened by a fire at one of Gap’s key distribution centers in August, and sent the company’s shares up as much as 17 percent.
Gap pointed to Old Navy’s fall lineup for helping drive growth at the brand, which is more focused on budget shoppers. Still, its other two major divisions remain in a slump. Same-store sales fell 10 percent at the Gap in September and 9 percent at Banana Republic.
A fire at Gap’s distribution center in Fishkill, New York, is disrupting supply and hampering results. The blaze, which struck in August, hurt comparable sales by about 3 percent in September. And the company expects a similar impact in October. The fire forced Gap to reroute deliveries and boost staff at other facilities.
“Given poor results at Gap and Banana Republic, likely attributable to unappealing merchandise assortments, we don’t view the product lost in the fire as an important loss but rather a fortuitous reduction in inventory,” Richard Jaffe, an analyst at Stifel Financial Corp., said in a note to clients.
Same-store sales fell 3 percent companywide in September, less severe than the 3.6 percent drop analysts estimated. Gap shares rose as high as $26.67 in New York trading after the results were released, marking the biggest intraday gain since August 2012. The company’s merchandise margins also were better than expected, said Paul Lejuez, an analyst at Citigroup Inc. And the results may be good news for retailers in general, he said in a report. With mall traffic slowing, some investors have been concerned that retail stocks are in trouble.
Gap’s “customer demographic is fairly broad, spanning from babies to adults,” Lejuez said. It seems like September “overall likely wasn’t as bad as feared.”