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Gap’s 1Q17 Top-Line Growth Driven Entirely by Old Navy

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Gap beats on top line in 1Q17

Gap (GPS) reported total revenues of $3.4 billion in fiscal 1Q17, beating the consensus by $50.0 million. On a year-over-year basis, its top line remained almost flat.

Sales comps (comparables) rose 2.0% during the quarter. That compares to a 5.0% fall in comps in 1Q16. Management continues to expect flat to slightly positive comparable sales for fiscal 2017.

Art Peck, president and chief executive officer of Gap, said during the first quarter conference call,“We are pleased with our positive comp and earnings growth this quarter.”

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Comparable store sales growth was entirely driven by Old Navy

The 2.0% rise in overall comparable store sales was driven by an 8.0% rise in Old Navy comps. Banana Republic and Gap Global comps continued to languish, falling 4.0% during the quarter.

Neil Saunders, managing director at GlobalData Retail, said that Gap’s “progress is all down to Old Navy.” He added, “This imbalance means that Gap is firing on just one cylinder. More worryingly, it also undermines the group’s contention that improvements to styling, quality and fit are delivering results. On the contrary, we believe that Gap and Banana Republic are still brands in search of a purpose and identity.”

How did other apparel peers perform?

As the apparel sector is currently battling competition, currency headwinds, and retail bankruptcies, Gap’s results, especially for Old Navy, come as a positive surprise. Results for other apparel and accessory players have failed to meet expectations recently.

Athletic specialty retailer Foot Locker (FL), which reported results a day after Gap, missed its top-line as well as bottom-line expectations. Its same-store sales rose only 0.50% compared to analyst expectations of a 1.4% growth.

VF Corp. (VFC) also missed its top-line forecasts. Its total revenue fell 1.9% YoY (year-over-year) as the company continued to face currency headwinds and a muted North American wholesale market.

Investors who want exposure to Gap through ETFs can consider the PowerShares High Yield Equity Dividend Achievers ETF (PEY), which invests 2.0% of its holdings in Gap.

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