The Gap Inc. is showing continued turnaround muscle as its fourth-quarter results, reported after Thursday’s market close, bested Wall Street’s consensus expectations by 2 cents.
Shares of Gap rose 1.3 percent to $32.92 and then gained 2.2 percent to $33.65 in early after-market trading following the earnings report.
For the three months ended Feb. 2, net income rose 61 percent to $351 million, or 73 cents a diluted share, from $218 million, or 44 cents, a year ago. Net sales for the period rose 10.3 percent to $4.73 billion from $4.28 billion.
For the North American businesses in the quarter, Gap posted a 4 percent comparable-store sales gain; Banana Republic was up 3 percent and Old Navy rose 8 percent. International comps were down 2 percent. According to the company, the Gap, Banana Republic and Old Navy businesses in North America each posted positive comparable sales for four consecutive quarters. In the U.S., Gap sales rose 4 percent to $972 million; Banana Republic sales gained 6.3 percent to $655 million, and Old Navy sales climbed 11.5 percent to $1.46 billion.
For the year, net income rose 36.3 percent to $1.14 billion, or $2.33 a diluted share, from $833 million, or $1.56, last year. Net sales rose 7.6 percent to $15.65 billion from $14.55 billion. The Gap Inc. Direct division saw $1.9 billion in net sales, or a 24 percent increase over fiscal year 2011.
Glenn Murphy, chairman and chief executive officer, said during the conference call regarding the fourth quarter: “We believe there’s a lot more business to be had for us in December. When I look at the business and dissected it and spent time with the teams after the holidays, we still have quite a bit of opportunity available to us [to unlock] between Thanksgiving and Christmas. The consumer patterns are really shifting and we have a big amount of business done around Thanksgiving and Black Friday, and a lot of business being done the last three days before Christmas.”
He said the company needs to figure out the three weeks in between. As for its $130 million acquisition of specialty retailer Intermix on Dec. 31, Murphy said, “We love that business. There are a lot of talented people at Intermix. We are going to help them when it comes to the integration strategy [and] we feel better about the decision we made today than six weeks ago.”
As for why the company is doing so well, the ceo had one answer: “It starts, for me, and ends with product.”
He also gave kudos to the merchant and design teams for product that is “absolutely right on [for] what the brands stand for.”
Murphy also addressed some sourcing policy changes at the company, noting that a few years ago during the recession it was focused more on vendors and margin rate, negotiating cut-and-make prices. Under the new focus on chasing rapid response and putting new styles to work inside of a season, the company has focused on stronger relationships with mills and fabrics because a company that wants speed and understands the gross margin upside has to “have fabric ready to go.”
As for the overseas business, Murphy said China continues to do well for Gap Inc., where it has core Gap stores, an outlet business and an online operation. He said they plan to open 35 stores in China in 2013.
The first international store for Old Navy was opened in 2012 in Tokyo. The company said it plans to open as many as 20 more stores in 2013. Murphy said customer response has been great because “what’s missing for so many customers in Tokyo is a family brand based on [an] American aesthetics value proposition.”
As for fiscal year 2013, Murphy said the company has been spending time asking questions about the customer and the economy: “That’s important for us. With the new global platform we have choices. Where do we think the biggest potential is for us?”
The ceo said the company needs to “continue to give her reasons to buy. More excitement. Think of some examples last year: We launched the Rockstar jeans at Old Navy that was provocative. That gave her a reason to buy. When Gap came up with the marketing campaign called Icons Redefined, that gave her a reason to buy. If you are going to win in this environment, doing the same thing all over again is not a winning strategy. We have to bring more and more uniqueness, differentiation and excitement to the business. So beyond that, some big priorities for us as we look forward, one is the growth.”
The ceo also spoke cryptically about “some really good ideas that will be launched in 2013, which we will talk about down the road. We have to have this to win long-term.”
Sabrina Simmons, the firm’s chief financial officer, said the company will use a balanced approach to deliver on its financial goals: “We will focus on growing sales with healthy merchandise margins, managing our expenses in a disciplined manner, and delivering operating margin expansion and earnings-per-share growth.”
The cfo added that Gap expects to “grow operating margin from about 12% in 2012 to about 13% in 2013.” She added that it is also committed to returning excess cash to shareholders. Separately, the company raised its dividend by 20 percent to 60 cents in fiscal year 2013, with the first quarterly payment of 15 cents a share payable on May 1 to shareholders of record as of April 10, 2013.
The company provided fiscal 2013 guidance and said diluted earnings-per-share is expected at between $2.52 and $2.60, representing an 8 to 12 percent increase from fiscal year 2012.
“Azzedine has been one of the biggest influences in my life. He has always been such a strong, loving, fatherly figure to me. I call him Papa. His designs are indescribably unique, they are pieces of art. He knew how to make the female form look its loveliest. I have so many memories of him; my favorite might be during my first show with him in Paris. He liked me and he wanted to help me get more work. He called all his friends at Kenzo and Comme des Garcons, and asked them to book me. They said, ‘But she can’t walk!’ And he said, ‘but she has such a great ass!' His friendship and support has been the great privilege of my career. I can't imagine life without him. Repose en paix mon Papa.” - @stephanieseymour tells @wwd. #wwdfashion (📷: @steveeichner) #alaia #azzedinealaia
Azzedine Alaïa, flanked by two of his closest friends, models Stephanie Seymour and Naomi Campbell.
He designed Seymour’s dress for her 1995 wedding to Peter Brant, and treated Campbell (who famously called him Papa), like a daughter. For more on the legendary designer, tap the link in bio. #wwdfashion #alaia #azzedinealaia
Azzedine Alaïa's “I-did-it-my-way” ethos stood out starkly at a time when brands are experimenting with consumer-facing fashion shows, coed formats and trans-seasonal collections – anything to perk up lackluster sales of ready-to-wear in an age of Insta-everything. “It’s not creation anymore. This becomes a purely industrial approach,” the late designer told WWD in an interview last year. “But anyway, the rhythm of collections is so stupid. It’s unsustainable. There are too many collections.” Read more about the iconic designer’s life and work on wwd.com, link in bio. #wwdfashion #azzedinealaia (📷: @WWD Archive, 1986) #alaia
Sneaker reselling app @goat’s latest exhibit, "The Greatest: New York," tells the story of New York's sneaker culture. To celebrate the exhibit, an intimate crowd gathered on Thursday night at the pop-up gallery space, located at Platform in Culver City, to hear guest speaker and illustrator @esymai talk about her own rise in streetwear and women in the business. "For me I'm just someone who is creative. I like to create things," said Chang. #wwdfashion
Azzedine Alaïa, one of the most iconic couturiers of the modern era whose body-con designs defined Eighties fashion, has died in Paris. The diminutive Tunisian-born designer, known for his structured knitted dresses with fitted waists and impeccably cut, figure-hugging second skin silhouettes was deeply admired by his peers, and counted supermodel Naomi Campbell - his adoptive daughter - among his inner circle, one of a gang of glamazons including Farida Khelfa, Carla Bruni and Stephanie Seymour who became ambassadors of his style. (📷: Alexandre Guirkinger) #wwdblast