Gap, Ross Surge as Discount Format Still Luring in Shoppers
(Bloomberg) -- Gap Inc. and Ross Stores Inc. are showing that growth is possible for apparel retailers. You just have to offer cut-rate prices.
Both apparel companies saw their shares spike on Friday after posting comparable sales that exceeded analyst estimates. Gap relied on its budget-minded Old Navy chain for growth. Ross, meanwhile, used its off-price strategy to outperform expectations despite the hurricanes that battered Texas and Florida.
The results indicate that Americans are still willing to hit the mall and stock up on apparel, if they feel like they’re getting a deal. While many shoppers increasingly prefer to order their clothes online, Ross and Old Navy show that low prices remain a brick-and-mortar draw -- especially for families and younger shoppers.
“Gap Inc. has been able to rely on Old Navy to push up performance,” Neil Saunders, an analyst at GlobalData Retail, said in a note. “The brand remains a popular destination.”
Gap shares rose as much as 9.2 percent, the most intraday in over a year, to $30 on Friday, while Ross jumped as much as 13 percent to $73.94 -- the highest level since going public in 1985. The companies have outperformed larger rivals, such as department stores, which have struggled to adjust to the new consumer landscape.
Gap’s same-store sales rose 3 percent in the latest quarter, outperforming the 1.3 percent estimate compiled by Consensus Metrix. This was powered by Old Navy, which grew 4 percent by that measure. Even the company’s namesake brand was able to break a string of 14 quarters without any positive comparable growth.
“We continue to make progress,” Chief Executive Officer Art Peck said in a statement. He cited the company’s focus on Old Navy, sportswear and its investment in e-commerce. The company also raised its earnings forecast for the full fiscal year.
The retailer posted third-quarter earnings that topped analysts’ estimates as comparable sales -- a key measure -- grew at both Gap’s Old Navy discount brand as well as its flagship brand. It marks the first time in 15 quarters that the company’s namesake brand has posted positive same-store sales.
At Ross, comparable sales growth was 4 percent -- double the 2 percent forecast from Consensus Metrix. It also raised its guidance for full-year earnings.
“Earnings outperformed our expectations,” CEO Barbara Rentler said. “We are pleased with these strong results, which reflect our continued market-share gains in a challenging retail environment.”
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