Remarks from Federal Reserve Chairman Jerome Powell sent interest rates down and stocks higher on Friday. The S&P 500 (SNPINDEX:^GSPC) closed at an all-time high of 2,874.69 and the Dow Jones Industrial Average (DJINDICES:^DJI) gained half a percentage point.
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Materials stocks rebounded from a fall yesterday, with the SPDR S&P Metals and Mining ETF (NYSEMKT:XME) closing up 2%. Emerging markets also bounced back, thanks in part to a weakening dollar; the iShares MSCI Emerging Markets ETF (NYSEMKT:EEM) rose 1.9%.
Gap's namesake brand continues to struggle
Gap announced second-quarter results that generally beat expectations and the company maintained profit guidance for the year, but weakness in the company's namesake brand spooked investors, and shares fell 8.6%. Net sales grew 7.5% to $4.09 billion, edging out expectations for $4.01 billion. Earnings per share came in at $0.76, 31% above adjusted EPS in the period last year and beating the analyst consensus by $0.03.
Comparable sales increased 2%, up from 1% in Q2 last year. Old Navy was the standout, as usual, with a 5% increase in comps, the same growth as in the period a year ago. Banana Republic grew comparable sales by 2%, a turnaround from last year's 1% decline. The Gap brand, though, had a 5% drop after falling 1% last year.
Gross margin, after subtracting the effect of an accounting change, fell 10 basis points due to a decline in merchandise margin of 70 basis points. The lower margin was attributed to the Gap brand, where the company has been trying to reduce inventory and cut the number of styles.
Executives on the conference call expressed optimism that margins in the Gap brand will improve in the second half and that "the worst is behind us" in terms of sales performance. But analysts questioned whether the issue was really one of execution or if the problems with the brand -- given sales appear set to decline for the fourth straight year -- could be deeper.
Splunk soars on accelerating revenue
Shares of Splunk soared 14.8% after the data analysis platform company reported Q2 results that beat expectations for the 15th quarter in a row. Revenue grew 39% to $388.3 million and non-GAAP earnings per share came in at $0.08, compared with $0.11 in the period a year earlier. Analysts were expecting non-GAAP EPS of $0.05 on revenue of $359 million.
License revenue grew 36% to $200.7 million and revenue from maintenance and services was up 41% to $187.6 million. The company is moving to a subscription model and is making progress faster than it had expected. Prior to the current fiscal year, the company had realized between 40% and 50% of software bookings from renewable contracts. For the first half of this year, renewable contracts comprised 72% of total software bookings. The company added over 550 new enterprise customers in the quarter.
Non-GAAP operating margin was 2.9%, above the company's guidance of 2%. Splunk generated $28 million in free cash flow in the quarter and now has about $900 million in cash and investments.
Looking forward, Splunk raised guidance for full-year revenue by 2.4% to $1.685 billion and maintained its forecast for non-GAAP operating margin of 11.5%, up from last year's 9.2%.
Splunk sells a platform to help enterprise customers monitor and analyze data, and rapid top-line growth from a growing customer base sent the stock to an all-time high today.