Stock price halted after apparently early release

Gap Inc. raised its full-year profit outlook on Thursday after its largest brand, Old Navy, reported better-than-expected results.

A Gap spokesperson told CNBC that the company’s second-quarter results were released earlier than expected because the company “mistakenly” posted them on its website and then removed them.

“Once the error was discovered, we immediately notified the New York Stock Exchange and trading in our shares was suspended,” the spokesman said, adding that the outcome was announced “as a result of a clerical error.”

Gap Inc. shares were halted for trading just before 10 a.m. ET. The company reported its quarterly earnings at 11:12 a.m. ET. Following the announcement, the stock price rose more than 2% after a trading halt for most of the morning.

According to analysts surveyed by LSEG, the company’s report compared with Wall Street expectations:

Earnings per share: 54 cents (expected: 40 cents)Revenue: $3.72 billion (expected: $3.63 billion)

The company reported net income for the three months ended Aug. 3, nearly double what it achieved in the same period a year ago. Gap reported profits of $206 million, or 54 cents a share, up from $117 million, or 32 cents a share, in the same period a year ago.

Sales increased approximately 5% to $3.72 billion from $3.55 billion in the same period last year.

For the full year, Gap now expects gross margins to be 2 percentage points higher than its previous forecast of an increase of at least 1.5 percentage points, and operating profit now appears set to increase by about 50%, up from its previous forecast of an increase of just over 40%.

Gap has worked for the past year under CEO Richard Dixon (formerly CEO) to turn around the business, reverse slumping sales and restore cultural relevance. Mattel An executive who is credited with reviving the Barbie empire.

Since Dixon took over as president, sales at the company’s four brands (Banana Republic, Old Navy, Athleta and its namesake brand) have begun to recover, and the company is once again standing out among its peers. Besides sales and presence, Gap’s profits and balance sheet have also improved significantly under Dixon’s stewardship. The company ended the quarter with $2.1 billion in cash, cash equivalents and short-term investments, up 59% from a year ago.

The company’s second-quarter results didn’t beat expectations by much, but they did show a solid improvement compared to a year ago.

“We’re really focused on our strategic priorities, and the No. 1 priority is maintaining the financial and operational rigor that has become the foundation of our operations to the extent that we can define it, which drives better process and cultural accountability,” Dixon said in an interview with CNBC.

“Our brand revitalization has been made possible through financial and operational rigor which is evident in the results, visible in our stores and on our website,” he added.

“We’re building a stronger brand identity, underpinned by on-trend products,” Dixon said. “We’re amplifying that through better storytelling. Our media mix has become much more innovative and, generally speaking, we’re proud of our brand’s portfolio work in the context of cultural relevance.”

Same-store sales rose 3% in the quarter, in line with the 3.1% increase analysts had expected, according to Street Accounts. Gross profit margin was 42.6%, beating analysts’ expectations of 40.8%.

Let’s take a closer look at how each brand performed.

Sales rose 8% to $2.1 billion, while same-store sales rose 5%, beating analysts’ expectations of a 4.3% increase, according to Street Accounts. The company has been working to improve its product assortment, focusing on offering fashionable value items rather than just low prices.

“We’ve raised our fashion quotient, so to speak,” Dixon said. “As well as driving a more disciplined approach with financial and operational rigour, we’re now ramping up our revitalisation strategy and seeing the results.”

With consumers feeling the effects of inflation and high interest rates, many turning to cheaper options, Dixon said Old Navy is seeing “growth across all income groups.”

“We’re seeing an expected trend toward value, and Old Navy is responding with a welcoming response,” Dixon said. “We’ve become the style authority and brand in the value market, and we’ve refocused our strategic approach and strategic priorities, and I think it’s paying off.”

Sales at Gap’s namesake brands rose 1% to $766 million during the quarter, while same-store sales rose 3%, slightly below the 3.4% increase that analysts had expected. Mr. Dixon said he is trying to reemphasize the importance of culture at the company, which he said is translating into higher sales for Gap’s namesake brands.

Gap’s premium workwear line is weighing on the company’s overall performance. Second-quarter sales and same-store sales were both flat year over year, contrasting with expectations of a 0.5% increase from Street accounts. The company said it is working on “improved pricing and assortment” to turn around the brand’s performance.

Asked what efforts the company was making to improve pricing, Dixon said: “In some cases, we got too ahead of ourselves, but in other cases, being more value-driven could help us achieve scale.”

“Our new merchandising strategy includes things like depth of product in store, finding the right mix and match, and finally, really improving fit, which is a big part of any brand but has been a challenge for Banana Republic in the women’s line and is an area we’re really focused on,” he said.

Gap Inc.’s athleisure brand, Athleta, saw sales fall 1% to $388 million, and same-store sales fell 4%, results that didn’t meet analyst expectations.

Athleta, one of Gap’s strongest brands during the pandemic, was on a downward trend and weighed heavily on the company’s performance until the company appointed Chris Blakeslee, former president of Alo Yoga, as CEO last summer. Since then, Blakeslee has worked to improve Athleta’s assortment and build excitement on the shelves with new product launches and collaborations with athletes.

The company said in a press release that it expects Athleta to return to positive same-store sales growth for the remainder of the year.