No “Teen Slump” at Gap Inc., Profits Rise 25%

Old NavySan Francisco—Bucking the “teen slump” that plagued many of its competitors last quarter, Gap Inc. reported Thursday that its second quarter profit rose 25%.

The specialty retailer has reported higher comparable store sales for six consecutive quarters, helped by new denim and athletic merchandise that boosted sales at Gap and Old Navy stores.

For the quarter ended August 3, Gap Inc. posted net income for the quarter ended Aug. 3 rose to $303 million, or 64 cents a share, from $243 million, or 49 cents, a year earlier.

Net sales rose 8.2% to $3.87 billion. Analysts’ average estimates expected Gap Inc. to report earnings of 63 cents a share on revenue of $3.8 billion.

Comparable sales rose 5%. That includes 6% gains at both the Gap and Old Navy stores and a 1% decline at Banana Republic.

By region, total company sales grew 9.1% in the United States, a 0.6% increase in Asia, 10% in Canada and 6.6% in Europe.

Gross margin widened to 40.5%—an increase of 60 basis points. Operating margin rose 160 basis points to 13.5%.

‘They Bucked the Trend Everyone is Seeing’

“Given how fragmented the apparel business is, coming to the market with different brands and unique brands and multiple brands into different channels and into different geographies is paying off, as evidenced by this quarter,” said Glenn Murphy, chief executive.

On a conference call with analysts, Murphy said traffic had been slightly lower in the first and second quarter but the company believes that metric can be improved, and with the growth online, and gains to units sold per transaction and conversion.

Gap Inc. raised its full-year earnings per share guidance to between $2.57 and $2.65 a share, up from $2.52 and $2.60 a share. Analysts had forecast earnings of $2.77 a share.

The company continued to act on its international expansion plans. Its first Old Navy store in Shanghai and the launch of an e-commerce site for the brand in China is scheduled for the first half of 2014. Gap Inc. ended its most recent quarter with 10 Old Navy stores in Japan and pacing to open 15 to 20 new stores for the year.

Analysts noted Gap Inc’s standout performance. “For them not to have lowered guidance is a good thing because everyone else did,” Poonam Goyal, a retail analyst with Bloomberg Industries, said. “Overall, they bucked the trend everyone is seeing. The retailers that stand out are the ones with a combination of pricing, marketing and product.”

 

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Jeff Prine

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