Finanzas: Gap Inc. Reports Second Quarter Results

 

Gap Inc. (NYSE: GPS) announced second quarter fiscal year 2016 diluted earnings per share were $0.31 on a reported basis. Excluding the impact associated with its previously announced restructuring plans, which was approximately $0.29, the company’s adjusted diluted earnings per share, a non-GAAP financial measure, were $0.60 for the second quarter of fiscal year 2016.

The company noted that foreign currency fluctuations negatively impacted earnings per share for the second quarter of fiscal year 2016 by an estimated $0.05, or about 8 percentage points of earnings per share growth on an adjusted basis. The company also noted that adjusted diluted earnings per share for the second quarter of fiscal year 2016 were up slightly when compared to the same period last year when excluding the impact of restructuring costs for both periods, as well as the impact of foreign currency fluctuations for the second quarter of fiscal year 2016. Please see the reconciliation of adjusted diluted earnings per share, a non-GAAP financial measure, from the GAAP financial measure in the table at the end of this press release.

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“During the quarter, we took critical steps to execute our restructuring plans and to build a more efficient global brand model with greater potential for growth,” said Art Peck, chief executive officer, Gap Inc. “While I remain unsatisfied with the pace of improvement across the business, I am encouraged by the underlying signs of progress in Q2, as demonstrated by healthier merchandise margins. Our management teams share my urgency to create fundamental change that will drive long-term performance.”

Second Quarter 2016 Comparable Sales Results

Gap Inc.’s comparable sales for the second quarter of fiscal year 2016 were down 2 percent versus a 2 percent decrease last year. Comparable sales by global brand for the second quarter were as follows:

Gap Global: negative 3 percent versus negative 6 percent last year
Banana Republic Global: negative 9 percent versus negative 4 percent last year
Old Navy Global: flat versus positive 3 percent last year

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Net Sales Results

Net sales for the second quarter of fiscal year 2016 were $3.85 billion compared with $3.90 billion for the second quarter of fiscal year 2015.

Additional Second Quarter Results and 2016 Outlook

Full Year Earnings per Share Guidance and Operating Margin

The company updated its reported diluted earnings per share guidance for fiscal year 2016 to be in the range of $1.37 to $1.47. Excluding the negative impact of restructuring costs, which is expected to be approximately $0.45 to $0.50, the company expects its adjusted diluted earnings per share to be in the range of $1.87 to $1.92. Please see the reconciliation of adjusted diluted earnings per share, a non-GAAP financial measure, from the GAAP financial measure in the table at the end of this press release.

Excluding restructuring costs, the company now expects its adjusted operating margin to be about 8.5 percent in fiscal year 2016.

Operating Expenses

Second quarter fiscal year 2016 reported operating expenses were $1.16 billion compared with $1.09 billion for the second quarter last year. Excluding restructuring costs for the second quarters of fiscal years 2016 and 2015, second quarter fiscal year 2016 operating expenses were about flat versus last year.

Marketing expenses for the second quarter of fiscal year 2016 were $131 million, or about flat versus the second quarter of last year.

Effective Tax Rate

The effective tax rate was 52.5 percent for the second quarter of fiscal year 2016. The second quarter effective tax rate reflects the impact of certain non-cash tax expenses related to foreign restructuring costs, which resulted in an increase to the effective tax rate of approximately 10 percentage points.

The company now expects its reported fiscal year 2016 effective tax rate to be about 44 percent. Excluding the tax impacts of the restructuring costs, the company expects its adjusted fiscal year 2016 effective tax rate to be about 40 percent.

Inventory

Total inventory dollars were down about 3 percent at the end of the second quarter of fiscal year 2016, in-line with the company’s previous guidance. At the end of the third quarter of fiscal year 2016, the company expects total inventory dollars to be down in the low single digits year-over-year.

Cash and Cash Equivalents

The company ended the second quarter of fiscal year 2016 with $1.7 billion in cash and cash equivalents. Year-to-date free cash flow, defined as net cash provided by operating activities less purchases of property and equipment, was an inflow of $464 million. Please see the reconciliation of free cash flow, a non-GAAP financial measure, from the GAAP financial measure in the tables at the end of this press release.

Cash Distribution

The company paid a dividend of $0.23 per share during the second quarter of fiscal year 2016. In addition, on August 11, 2016, the company announced that its board of directors authorized a third quarter dividend of $0.23 per share. The company ended the quarter with 398 million shares outstanding.

Capital Expenditures

Fiscal year-to-date 2016 capital expenditures were $270 million. For fiscal year 2016, the company continues to expect capital spending to be approximately $525 million.

Depreciation and Amortization

The company continues to expect depreciation and amortization expense, net of amortization of lease incentives, to be about $550 million for fiscal year 2016.

Real Estate

The company ended the second quarter of fiscal year 2016 with 3,730 store locations in 52 countries, of which 3,273 were company-operated.

During the second quarter of fiscal year 2016, the company opened 19 and closed 22 company-operated stores. Square footage of company-operated stores was down about 1 percent compared with the second quarter of fiscal year 2015.

Gap Inc. continues to expect net closures of about 50 company-operated stores in fiscal year 2016. Additionally, the company continues to expect square footage to be down about 2 percent for fiscal year 2016 when compared with fiscal year 2015.

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