The gross profit of Gap Inc., one of the leading global retailers offering clothing and accessories for men, women, and children, has been posted at $1.62 billion in the third quarter of fiscal 2018, an increase of 6 per cent compared with last year. For the reported quarter, net sales were $4.1 billion, an increase of 7 per cent compared with last year.
Due to the 53rd week in fiscal 2017, comparable sales for the third quarter of 2018 are compared with the 13-week period ended November 4, 2017. On this basis, the company’s third quarter comparable sales were flat compared with a 3 per cent increase last year. Comparable sales for Old Navy Global went up 4 per cent, Gap Global decreased 7 per cent and Banana Republic Global rose 2 per cent.
“We are pleased to report continued solid performance from Old Navy, Banana Republic and Athleta leading into the important holiday season,” said Art Peck, president and chief executive officer, Gap Inc. “We are clearly not satisfied with the performance of Gap brand. We know this iconic brand is important to customers, and we are committed to taking the bold and necessary steps to ensure that it delivers value to shareholders.”
Gross margin was 39.7 per cent, flat compared with last year. Excluding the impact of presentation changes from the adoption of the new revenue recognition standard, gross margin was 38.1 per cent, a decrease of 160 basis points compared with last year, largely driven by an increase in shipping expenses and elevated promotional activity at Gap brand.
Operating margin was 8.9 per cent, a decrease of 90 basis points compared with operating margin of 9.8 per cent last year. Excluding the impact of presentation changes from the adoption of the new revenue recognition standard, operating margin was 9.3 per cent, a decrease of 50 basis points compared with last year.
The company ended the third quarter of fiscal year 2018 with 3,688 store locations in 43 countries, of which 3,218 were company-operated. Third quarter was ended with $1.3 billion in cash, cash equivalents, and short-term investments. Year-to-date free cash flow, defined as net cash from operating activities less purchases of property and equipment, was $57 million, compared to third quarter 2017 year-to-date free cash flow of $197 million, which included $60 million in insurance proceeds related to loss on property and equipment due to the Fishkill fire.
For fiscal 2018, the company continues to expect comparable sales to be flat to up slightly. The company has updated its diluted earnings per share guidance for 2018 to be in the range of $2.55 to $2.60, which incorporates the benefit of an expected fiscal year 2018 effective tax rate of 25 per cent compared with previous guidance of an effective tax rate of 26 per cent.