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Gap's comparable sales miss as its namesake brand struggles 

Key Points
  • Gap reported quarterly same-store sales below analysts' estimates.
  • Results were dragged down by another weak performance in its namesake brand.
  • The Gap brand, struggling with a switch by young shoppers to fast-fashion from rivals such as such as H&M and Inditex Zara, has in recent quarters faced a spike in inventories, largely due to older styles.

Gap reported quarterly same-store sales below analysts' estimates on Tuesday, dragged down by another weak performance in its namesake brand, indicating that the apparel retailer needs to double down on efforts to reduce excess inventory and to revive sales.

The Gap brand, struggling with a switch by young shoppers to fast-fashion from rivals such as such as H&M and Inditex Zara, has in recent quarters faced a spike in inventories, largely due to older styles.

To clear the inventories, Gap has been discounting heavily and that has weighed on sales and margins.

Same-store sales at the Gap brand fell 7 percent in the third quarter, much bigger than the 4 percent drop analysts had expected, according to IBES data from Refinitiv.

A GAP employee works in a San Francisco store.
Getty Images

"Based on current projections, we would expect Gap brand to show sequential progress but still be down for the year," Chief Financial Officer Teri List-Stoll said on a post-earnings call.

Chief Executive Officer Art Peck has also shut Gap brand stores and named a new head for the unit earlier this year in a bid to shore up sales.

Peck on the call said "early reads of fourth-quarter product flows are encouraging."

"The problem is that the turnaround is taking a long time and it still is a significant misstep on their part," said Gabriella Santaniello, founder of retail consultancy A line Partners.

Old Navy, Gap's more affordable brand and a bright spot, also missed comparable sales estimates by a small margin.

Sales rose 4 percent, while analysts had expected a 4.65 percent increase. The brand has topped estimates in six of the past eight quarters.

Business casual clothing brand Banana Republic topped analysts' estimates for same-store sales, posting a 2 percent rise compared with average estimate of 0.72 percent gain.

Overall company same-store sales were flat in the three months ended Nov. 3, missing analysts' average estimate of a 1.09 percent rise.

Excluding items, Gap earned 69 cents per share, beating the average estimate by a cent.

Net sales rose 6.5 percent to $4.09 billion, slightly above the average estimate of $4 billion.

The company cut the top end of its full-year profit forecast to $2.60 per share from $2.70, retaining the lower end at $2.55.

Shares of the San Francisco-based company, which declined 3 percent in regular trading, dropped as much as 2 percent after the bell. They have fallen 27 percent so far this year.

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Retail

Bain and KKR establish a severance fund for Toys R Us workers

Key Points
  • The private equity firms that owned Toys R Us before the company declared bankruptcy earlier this year have each pledged $10 million to create the TRU Financial Assistance Fund, which aims to distribute severance funds to former employees.
  • The firms said the goal of the fund is to bring some degree of financial relief to eligible ex-employees who were affected by the retailer's unexpected liquidation.
  • In order to be eligible for the payments, those who were left jobless as a result of the company's liquidation will have to have worked at Toys R Us for at least a year, they can't have more than $110,000 or less than $5,000 in annual income, and they must have met the termination and employment guidelines in the Toys R Us plan.