Comp Store Sales Gains in North America Boost Q4 Profit for Gap Inc.

Old NavySan Francisco—Boasting its best holiday quarter in six years, Gap Inc. today reported increased fourth quarter earnings aided by improved comparable store sales in North America.

For the quarter ended Feb. 2, Gap posted a net income increase of 61% to $351 million, or 73 cents a share, compared to $218 million, or 44 cents a share, a year ago. That beat analysts’ average estimate for 72 cents a share.

Total sales rose 11% to $4.73 billion, the highest since the quarter ended in February 2007. Total 2012 sales increased 7.6% to $15.7 billion.

Comparable store sales by division were: Gap North America up 4% versus a 3% decline last year; Banana Republic North America up 3% versus flat last year; Old Navy North America up 8% vs. a 6% decrease last year; and, International, down 2% versus down 6% a year ago.

“Our results in 2012 were stellar in many ways, and I’m very pleased with how well our product resonated with customers,” said Glenn Murphy, chairman/ceo. “We enter 2013 focused on leveraging our global brands to gain more market share and continuing to increase shareholder value.”

A turnaround at Gap Inc. which has been several years in the making seems to have taken hold. The company noted that in North America, Gap, Banana Republic, and Old Navy each delivered positive comparable sales for four consecutive quarters.

Gross margin for the year increased increased 320 basis points to 39.4% while operating margin increased 250 basis points to 12.4%. Operating margin is expected to grow to about 13% in 2013, Murphy said.

Store Expansion in 2013

Noting the new global reorganization Murphy announced last fall—naming a single global executive to each division to oversee online, North America and international division for each—Gap Inc. “is set to improve given the company’s structural reorganization and global perspective by brand,” said Randal Konik, analyst at Jefferies Group.

After executing key real estate and expansion initiatives in 2012, the company is going to expand square footage for the first time since 2007, focusing on Old Navy in Japan, more franchise stores, and new Athleta stores.

In North America, the company made significant progress toward optimizing its Gap and Old Navy stores through store closures, consolidations, and downsizing.

Athleta, which saw 25 doors open for a total of 35, is expected to open 30 more stores in fiscal 2013.

Meanwhile, Old Navy opened its first store in Japan and plans to open as many as 20 more stores in fiscal 2013. And 33 Gap and outlet stores were opened in China during 2012 and an additional 35 stores are expected to open there in fiscal 2013.

For its earnings outlook, Gap Inc. expects a per share profit of between $2.52 to $2.60 a share for fiscal 2013 compared to analysts’ consensus for $2.59 a share.

 

 

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Jeff Prine, Editor at Large, Accessories Magazine
Jeff returns as a regular contributor to Accessories magazine. Initially Jeff worked as senior editor at Accessories more than 20 years ago and his love of the industry has followed him until present. Since his tenure here, Jeff has continued to report jewelry, watch and other luxury goods trends as executive editor at Modern Jeweler magazine, fashion director at Lustre, and as contributor on products and trends for consumer and trade publications and websites. In addition to his editorial experience, Jeff also served as an adjunct instructor for accessories merchandising at Fashion Institute of Technology. jeffp@busjour.com