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

In Industry News, Reports, What's New by Jeff PrineLeave a Comment

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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