Gap Inc (NYSE:GPS) raised its full-year profit forecast after posting better-than-expected quarterly earnings, driven by strong sales growth at its namesake brand, sending shares up more than 11%.
The retailer reported second-quarter adjusted earnings of $0.52 per share, topping analyst estimates of $0.48, as gross margins expanded 20 basis points to 41.4%.
Revenue came in at $3.7 billion, roughly in line with estimates of $3.69 billion but down 2% from a year earlier.
Comparable sales at the Gap brand rose 10% year-over-year, marking another quarter of double-digit growth, while Old Navy's net revenue fell 4% to $2.1 billion. Banana Republic revenue rose 1% to $478 million, and Athleta sales declined 12% to $264 million.
Overall comparable sales across the company fell 1% year-over-year. Net income came in at $501 million, with free cash flow of $261 million year-to-date.
The company raised its full-year adjusted earnings guidance to a range of $2.35 to $2.45 per share, above the $2.34 analyst estimate, and now expects revenue growth of 1% to 1.5%.
For the third quarter, Gap guided to revenue growth of 1.5% to 2.5% year-over-year, with gross margin expansion of 25 to 75 basis points and slight leverage on operating expenses.
Gap also announced Michael Francis will become the next President and CEO of Old Navy, succeeding Haio Barbeito.
"Continued operational and financial rigor contributed to gross margin strength, resulting in the company exceeding profit expectations," said Gap Inc (NYSE:GPS) CEO Richard Dickson.
"We have work to do at Old Navy, but we are taking targeted actions that are already driving improved results."
The CEO added that Old Navy is “poised for its next chapter of growth.”
"Michael is one of the most respected commercial, brand and customer leaders in retail,” Dickson added.