Gap Inc. Q1 Profit Falls 22% But Still Beats Estimate

Gap Inc.San Francisco–Gap Inc. reported Thursday that its first quarter profit fell 22%, hindered by foreign currency fluctuations and slower sales. Despite the disappointing results, the specialty retailer maintained its full-year forecast.

For the quarter ended May 3, the parent to Gap, Banana Republic and Old Navy posted earnings of $260 million, or 58 cents a share, compared with $333 million, or 71 cents a share, in the year-ago period. The company said that currency fluctuations reduced results by about five percentage points. Analysts’ estimate expected 57 cents a share.

China Expansion

Total net revenue rose 1.2% to $3.77 billion edging past analysts’ consensus for $3.76 billion in sales. Comp store sales were down 1% after the company had posted a series of increases.

By division, Gap global had a 5% drop in comp sales while Banana Republic slipped down 1%. Old Navy global rose 1%.

“After a disappointing start, I’m pleased with how the business performed toward the end of the quarter, especially at Old Navy,” said Glenn Murphy, chairman/ceo.

The company’s operating margin for the quarter receded to 11.7% from 14.2% last year. The company expects operating margin to be about flat for 2014.

For its fiscal 2014, Gap continues to expect earnings of $2.90 to $2.95 a share, while analysts expect $2.93 a share.

Analysts pointed out that the first quarter results indicate that Gap Inc. still faces challenges as it hopes to continue the turnaround momentum the retailer began in 2012.

Among the directions for the company is its plans to more than triple sales in China in three years. So far Gap Inc. opened 81 Gap stores in China at the end of last year and unveiled its first Old Navy store there earlier this year. Another 30 Gap stores are planned by the end of this year.

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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