Gap Inc. Boasts 43% Jump in Q1 Profit on Strong Sales

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White essentials and accessories at Gap this summer

White essentials and accessories at Gap this summer

San Francisco—Gap Inc.’s turnaround plans seem to be right on schedule. The specialty retailer reported Thursday afternoon that its first quarter profit jumped 43% as sales increased.

For the quarter ended May 4, Gap Inc. posted net earnings of $333 million, or 71 cents a share, compared to a profit of $233 million, or 47 cents a share, in the year-ago quarter.

Net revenue rose 6.9% to $3.73 billion with comparable store sales increasing 1% on top of a 4% rise a year ago.

The figures were better than analysts’ average estimate which expected 69 cents a share on sales on $3.67 billion.

By division, comparable store sales rose 8% at Gap and Old Navy global, while Banana Republic global posted flat comp sales. Online revenue rose 27%.

‘Consumers Moving in a More Positive Direction’

“We are pleased with our strong start to the year, especially first-quarter sales,” said Glenn Murphy, chairman/ceo, who said noted that consumers were showing improved shopping mindsets due to the improving housing market, employment rise and stock market gains.

“The consumer has been operating pretty much for the last five-plus years in a very challenging environment,” Murphy told analysts on a conference call. “This is the first quarter in a long time that the consumer, to us, felt like they were moving in a more positive direction.”

CFO Sabrina Simmons said that results also benefited from a shift in the calendar. This year’s quarter included a big May selling week versus a small selling week in February 2012.

The company’s operating expenses were $1 billion, up $34 million compared with the first quarter of last year. Marketing expenses for the quarter were $143 million, up $4 million compared with the first quarter of last year.

As for operating margin, Gap Inc. was at 14.2% in the first quarter compared to 11.3% last year. The company continues to expect that operating margin for fiscal year 2013 will be about 13%.

During the quarter, the company opened five Athlete stores for a total of 40 doors. It also opened nine Old Navy stores in Japan for a total of 10 there. And as part of its expansion plans in China, the company opened two additional stores there for a total of 49.

Gap also bought back $58 million worth of its own shares. It expects to earn from $2.52 to $2.60 a share for the year while analysts’ consensus forecast $2.72 a share.

Gap executives made no mention of the company’s decision last week along with 14 North American retailers to decline to sign an accord on Bangladesh building and fire safety. Gap, which does business with 78 factories in Bangladesh, was pressured to sign the agreement after the collapse of a garment factory that killed more than 1,100 people.

But Murphy has said the accord didn’t “make sense” for the company and that it would sign the agreement if rules on “how disputes are resolved” are changed.

 

 

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