L Brands, Gap outpace September expectations

Dive Brief:

Victoria's Secret parent L Brands Inc. reported on Thursday that September same-store sales, including e-commerce, rose 3%, buoyed by its Bath & Body Works unit, exceeding its own forecast as well as a Retail Metrics consensus estimate for flat sales. Excluding online sales, same-store sales in the month rose 1%.
In related September earnings news, Gap Inc. reported modest gains despite a fire at its New York State fulfillment center early in the month, with same-store sales falling 3%, compared to a 1% decrease a year ago.
Old Navy was once again Gap's saving grace, up 4%, including a negative impact from the Fishkill distribution center fire of approximately 2 percentage points, on par with a 4% rise last year.

Dive Insight:

Gap investors seemed cheered by the better-than-expected results, given the fire that damaged about 25% of the Poughkeepsie area warehouse building beyond repair and caused major smoke and water damage. The Fishkill distribution complex represents 10% of Gap's nationwide warehouse capacity, the retailer said, adding the fire is likely to have a 3 percentage-point hit on its October same-store sales and a negative impact to same-store sales results in the fourth quarter.

Gap brand sales were down 10% in the month, including an estimated negative impact from the fire of some 5 percentage points, versus flat in the year-ago period. Banana Republic suffered a 9% decline, including an estimated negative impact of 3% because of the fire, slightly better than the 10% decline the brand saw last year.

After the results, Gap shares rose 5.6% in after-hours trading, though Retail Metrics analyst Ken Perkins said it was the flagship Gap brand’s 10% comp decline that missed the Retail Metrics consensus of a 6.1% decrease “and marked the division’s worst performance since a 15% comp decline in April 2015.”

In a note issued Thursday, Perkins wrote: “Gap stores did not look particularly busy to us, and the company ran numerous 40% off sales, particularly online, throughout the month.”

Gap CFO Sabrina Simmons took note of Old Navy’s performance in a statement. "While we remain focused on performance across the portfolio, we are pleased to see a strong customer response to Old Navy’s product assortment, which continues to drive positive momentum at our largest brand,” Simmons said.

Meanwhile, L Brands’ Victoria’s Secret was no longer the saving grace in September: Sales were flat, a steep departure from its 8% growth in the year-ago period. But its Bed Bath & Beyond unit picked up the slack.

“Bath & Body Works had another excellent month racking up a much better than expected 9% comp gain versus our consensus 2.9% estimate,” according to Perkins. The company said discounts helped bring down the lingerie brand, and inventory per square foot was up 2%.