Stock Story -
Clothing and accessories retailer The Gap (NYSE:GPS) reported Q4 FY2023 results exceeding Wall Street analysts' expectations, with revenue up 1.3% year on year to $4.30 billion. It made a non-GAAP profit of $0.37 per share, improving from its loss of $0.75 per share in the same quarter last year.
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Gap (GPS) Q4 FY2023 Highlights:
- Revenue: $4.30 billion vs analyst estimates of $4.23 billion (1.7% beat)
- EPS (non-GAAP): $0.37 vs analyst estimates of $0.25 (48.9% beat)
- Full year 2024 guidance calling for flat sales year on year and low to mid-teens percentage growth in operating income
- Gross Margin (GAAP): 38.9%, down from 63.5% in the same quarter last year
- Store Locations: 3,560 at quarter end, increasing by 208 over the last 12 months
- Market Capitalization: $7.07 billion
Operating under The Gap, Old Navy, Banana Republic, and Athleta brands, The Gap (NYSE:GPS) is an apparel and accessories retailer that sells its own brand of casual clothing to men, women, and children.
Apparel RetailerApparel sales are not driven so much by personal needs but by seasons, trends, and innovation, and over the last few decades, the category has shifted meaningfully online. Retailers that once only had brick-and-mortar stores are responding with omnichannel presences. The online shopping experience continues to improve and retail foot traffic in places like shopping malls continues to stall, so the evolution of clothing sellers marches on.
Sales GrowthGap is larger than most consumer retail companies and benefits from economies of scale, giving it an edge over its competitors.
As you can see below, the company's revenue has declined over the last four years, dropping 2.4% annually as it failed to grow its store footprint meaningfully and observed lower sales at existing, established stores.
This quarter, Gap reported decent year-on-year revenue growth of 1.3%, and its $4.30 billion in revenue topped Wall Street's estimates by 1.7%. Looking ahead, Wall Street expects revenue to remain flat over the next 12 months, a deceleration from this quarter.
Same-Store SalesSame-store sales growth is a key performance indicator used to measure organic growth and demand for retailers.
Gap's demand has been shrinking over the last eight quarters, and on average, its same-store sales have declined by 4.9% year on year. This performance is quite concerning and the company should reconsider its strategy before investing its precious capital into new store buildouts.
In the latest quarter, Gap's year on year same-store sales were flat. This performance was a well-appreciated turnaround from the 5% year-on-year decline it posted 12 months ago, showing the business is doing better.
Key Takeaways from Gap's Q4 Results We were impressed by how significantly Gap blew past analysts' EPS expectations this quarter. We were also excited its gross margin outperformed Wall Street's estimates. Guidance for the upcoming year was relatively in line with expectations, likely sparking some relief from investors. Zooming out, we think this was a solid quarter. The stock is up 9.2% after reporting and currently trades at $21.1 per share.