Gap Inc., citing strength in key categories and full-price selling and a reversal of negative comps across U.S. divisions, reported a strong third quarter on Thursday.
After years of being criticized as boring and losing relevance, the $13 billion San Francisco-based retailer appears to be moving closer to achieving a turnaround and on its way to its best year in recent history.
Net income for the quarter ended Oct. 27 reached $308 million, up 60 percent compared to $193 million reported in the same period last year. Third-quarter diluted earnings per share rose 66 percent to 63 cents, compared with 38 cents last year.
Gap, which operates Gap, Old Navy, Banana Republic, Piperlime and Athleta, raised its guidance for fiscal year 2012 diluted EPS to $2.20 to $2.25, up from the August forecast of $1.95 to $2. This compares with diluted earnings per share of $1.56 in fiscal 2011.
Net sales for the third quarter increased 8 percent to $3.86 billion, compared with $3.59 billion for the same period last year. Third-quarter comparable sales increased 6 percent.
The company did not forecast fourth-quarter sales, unlike other retailers such as The TJX Cos. Inc. and Saks Inc., which have forecast downward partly because of Hurricane Sandy. Gap, however, was optimistic about the upcoming holiday season.
“We’re very pleased with our strong third-quarter financial performance, highlighted by how well customers have responded to our product,” said Glenn Murphy, Gap Inc.’s chairman and chief executive officer. “We are ready to compete and win this holiday season as we drive to build upon our top-line growth.”
In after-hours trading Thursday, Gap shares rose 3.4 percent, or $1.14, to $34.40. They closed at the bell at $33.26. Murphy said Gap, Old Navy and Banana Republic all had very good performances, collectively up 8 percent. “It was product-led. It’s key categories. Comp is an outcome,” he said.
He said that since spring, the Gap division’s elevated denim offering has driven the overall business and has been bringing in the right customers. He also cited Gap’s baby business; men’s and women’s suiting at Banana Republic, along with woven tops and at Old Navy, denim, specifically the “rock star” jean, and the kids business.
“The execution of the plan for the last 15 months has been good,” Murphy said during a conference call.
He listed some of the major shifts in the company’s approach to products and brands, citing a more wear-now approach. “We have been pushing new arrivals. The number of weeks Old Navy receives fresh new product is the highest it’s ever been,” he said.
He also explained why last month’s management restructuring installing global leaders over all the brands is important in moving the company away from being too America-centric. “Customers are clearly becoming more and more global,” Murphy said. “It’s very important to have one lens looking across the brands in all channels in all different countries.…It is important to understand local needs of our customers, but this is a global approach first.” This will lead to a much more consistent approach in assortments around the world, though they won’t be identical, Murphy said.
He also said he is comfortable with the company’s performance in China, and that four outlets will open there; Athleta continues to perform well in any kind of setting, be it a mall, a street location, a strip or lifestyle center.
Regarding pricing, Murphy said, full-price selling has been decent, adding, “Our actual initial pricing is very sharp, so our goal midterm and long term is to reduce our dependency to get off those prices. This is really early days for how high the bar can be on regular price selling.”
However, Murphy was balanced in his assessment of the business, noting that traffic —long a major problem — is still noticeably stronger in the value businesses (Old Navy and the outlets) than in Gap or Banana Republic. “It’s not a disaster. It’s just not what we believe it should be long term,” he said.
Murphy also said that after years of downsizing domestically, next year will be the last. All the closures did drag down sales. “If there is one area where productivity is the most significant opportunity is at Gap brand specialty,” he said.
@tradesy is turning the concept of a showroom upside down with its new space in Santa Monica. Here, the company plans to hold events, art exhibits and a showcase rare fashion pieces like this Louis Vuitton boxing set. Get all the details on Tradesy’s first showroom on WWD.com. #wwdnews
Spotted last night at the @erdem x @hm launch event: Kate Bosworth, Rashida Jones, Kirsten Dunst and Selma Blair. The party, which took place in LA, also marked the opening of their pop-up shop. “I was interested in creating a collection that wasn’t in any way disposable. It was about pieces you’d create and keep forever, things that have a permanence to it,” designer Erdem Moralioglu said. #wwdeye (📷: Katie Jones)
Renee Zellweger in yellow in 2001 and again in 2017. Chosen as one of the 12 @pantone Leading Spring Colors (and dubbed “Meadowlark”), it only makes sense that the bright hue stands the test of time and is making a resurgence this season, seen already on stars like @blakelively and @gigihadid. (📷: Donato Sardello & @rexfeatures) #wwdfashion #tbt
Dior’s 70th anniversary celebration continues with a new exhibition at the Royal Ontario Museum in Toronto. “Christian Dior,” which is scheduled to run through March 18, takes a look at the founders tenure from 1947 to 1057 and feature 40 designs. Pictured here is an evening gown from the Ailée, fall 1948-49 haute couture collection. #wwdfashion (📷: Brian Boyle)
As one of the most recognizable models in the world, Christy Turlington Burns has an insider’s view of the fashion industry and the allegations of sexual harassment swirling around it. “I can say that harassment and mistreatment have always been widely known and tolerated in the industry. The industry is surrounded by predators who thrive on the constant rejection and loneliness so many of us have experiences at some point in our careers,” Turlington told WWD, along with her suggestions for how the modeling world should protect younger women and men. Read more on WWD.com. Link in bio. (📷: Tony Palmieri) #wwdnews
@asics America has tapped a new brand ambassador: famed DJ/record producer @steveaoki. This initiative is intended to set the tone for the new brand identity and philosophy and will include partnerships with influencers and in-store and off-line activations that will continue into next year. This is Asics’ most significant marketing effort in two decades, and is expected to attract younger consumers to the brand. #wwdfashion
24-year-old Jean Prounis is redefining the rules of jewelry. Formerly a studio assistant to Jemima Kirke and a design apprentice at Ghuran, she focuses on handcrafted subtleties and ancient goldsmithing techniques. “There was a really sterile feel in the environment and I wanted to have jewelry with character that shapes how you wear it everyday,” Prounis said. Each piece is hand made in New York, either by Prounis or three other jewelers in the district. #wwdfashion
“These collections continue to build on that vision, empowering differently abled adults to express themselves through fashion,” said @tommyhilfiger of his line of adaptive apparel, which launches today. The line consists of 37 men’s and 34 women’s styles based upon the pieces from the spring Tommy Hilfiger sportswear collection. #wwdnews