Clothing and accessories retailer The Gap (NYSE:GPS) reported Q4 FY2023 results exceeding Wall Street analysts' expectations, with revenue up 1.3% year on year to $4.30 billion. It made a non-GAAP profit of $0.37 per share, improving from its loss of $0.75 per share in the same quarter last year.

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"The fourth quarter exceeded expectations on several key metrics along with market share gains, reflecting improved trends at Old Navy and Gap and strong continued progress on margins and cash flow," said Gap Inc. President and Chief Executive Officer, Richard Dickson.

Operating under The Gap, Old Navy, Banana Republic, and Athleta brands, The Gap (NYSE:GPS) is an apparel and accessories retailer that sells its own brand of casual clothing to men, women, and children.

Apparel Retailer

Apparel sales are not driven so much by personal needs but by seasons, trends, and innovation, and over the last few decades, the category has shifted meaningfully online. Retailers that once only had brick-and-mortar stores are responding with omnichannel presences. The online shopping experience continues to improve and retail foot traffic in places like shopping malls continues to stall, so the evolution of clothing sellers marches on.

Sales Growth

Gap is larger than most consumer retail companies and benefits from economies of scale, giving it an edge over its competitors.

As you can see below, the company's revenue has declined over the last four years, dropping 2.4% annually as it failed to grow its store footprint meaningfully and observed lower sales at existing, established stores.

This quarter, Gap reported decent year-on-year revenue growth of 1.3%, and its $4.30 billion in revenue topped Wall Street's estimates by 1.7%. Looking ahead, Wall Street expects revenue to remain flat over the next 12 months, a deceleration from this quarter.

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Same-Store Sales

Same-store sales growth is a key performance indicator used to measure organic growth and demand for retailers.

Gap's demand has been shrinking over the last eight quarters, and on average, its same-store sales have declined by 4.9% year on year. This performance is quite concerning and the company should reconsider its strategy before investing its precious capital into new store buildouts.

In the latest quarter, Gap's year on year same-store sales were flat. This performance was a well-appreciated turnaround from the 5% year-on-year decline it posted 12 months ago, showing the business is doing better.

Key Takeaways from Gap's Q4 Results

We were impressed by how significantly Gap blew past analysts' EPS expectations this quarter. We were also excited its gross margin outperformed Wall Street's estimates. Guidance for the upcoming year was relatively in line with expectations, likely sparking some relief from investors. Zooming out, we think this was a solid quarter. The stock is up 9.2% after reporting and currently trades at $21.1 per share.

Gap may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.