Stocks sold off due to geopolitical concerns and falling oil prices on Friday. The Dow Jones Industrial Average (DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) both had small losses.
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Data source: Yahoo! Finance.
Oil stocks tumbled on news that Saudi Arabia and Russia are near an agreement to increase production, pushing oil prices down over 4%. The SPDR S&P Oil & Gas Exploration & Production ETF (NYSEMKT: XOP) fell 3.2%. Homebuilders were a bright spot, with the iShares US Home Construction ETF (NYSEMKT: ITB) rising 1.5%.
As for individual stocks, retail earnings reports continue to produce winners and losers in the market, with Foot Locker (NYSE: FL) rising higher on its profit outlook and The Gap, Inc. (NYSE: GPS) stumbling due to softening in its core brand.
Image source: Getty Images.
Foot Locker off to the races on strong profit
Shares of specialty athletic retailer Foot Locker jumped 20.2% after the company reported first-quarter results that exceeded expectations and gave an upbeat outlook for the rest of the year. Revenue increased 1.2% to $2.03 billion, compared with analyst expectations for a 2% decline. Earnings per share grew by $0.02 to $1.38 while Wall Street was expecting $1.25.
Comparable-store sales fell 2.8% from the period a year earlier and gross margin decreased from 34% to 32.9%. Selling, general, and administrative spending increased to 19% from 18.5% a year ago, due to higher investments in digital operations.
Those may not sound like stellar results, but they were better than what the company was expecting. "The flow of premium product continues to improve, with increasing breadth and depth in the most sought after styles from our key vendors," said CEO Richard Johnson in the press release. "This led to first quarter results which were above our expectations. With the strength of our strategic vendor partnerships and our central position in youth culture, we continue to believe that we are poised to inflect to positive comparable-store sales growth as we progress through the year."
In the conference call, the company said it expected strengthening sales performance during the year and double-digit growth in adjusted earnings per share over the $3.99 it earned last year.
Foot Locker had a low bar to step over this quarter, but the upbeat outlook, along with a 7.1% decline in inventory as the company cleared out slow-moving products, had investors believing in the stock today.
Gap brand stores drag down profit
Shares of Gap plummeted 14.6% after the company reported higher-than-expected sales but missed profit estimates. Sales were up 10% to $3.78 billion and EPS increased 16.7% to $0.42. Analysts were expecting the company to earn $0.46 per share on revenue of $3.6 billion.
Gap continues to struggle with its flagship stores, which had a comparable-sales decline of 4%, after flat performance in the previous quarter. Growth in its Old Navy stores slowed to a 3% comp gain, after growing 9% in Q4. Banana Republic was a bright spot, growing comparable sales 3%, up from 1% last quarter and a 4% decline in the year-ago period. Gross margin, excluding the effect of an accounting change, declined 120 basis points from last year, largely due to the Gap brand.
Looking forward, Gap reaffirmed previous guidance for EPS between $2.55 and $2.70, which is 22.7% ahead of last year's number at the midpoint, and comparable sales flat to up slightly.
In the conference call, Gap management said "operational missteps" led to high inventory in the Gap brand going into the quarter, which led to a decision to aggressively sell off the excess. CFO Teri List-Stoll said that the pressure will continue into Q2, but tried to reassure analysts that the cause was not an issue with product acceptance by customers.
Investors weren't buying that today, though, believing that the Gap brand has longer-term issues.
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