Gap Net Holds Steady, Comps Tick Ahead

Retailer's sales for the three months ended April 28 rose 5.8 percent to $3.49 billion.

Gap Inc.’s net profits were flat in the first quarter, but comparable-store sales rose 4 percent and the company nudged up its earnings guidance for the year.

This story first appeared in the May 18, 2012 issue of WWD.  Subscribe Today.

Net income held steady at $233 million, but earnings per diluted share grew to 47 cents from 40 cents a year earlier as the company repurchased stock. EPS came in 1 cent ahead of the 46 cents Wall Street expected.

Sales for the three months ended April 28 rose 5.8 percent to $3.49 billion from $3.3 billion a year earlier. Comps in North America grew 5 percent at both the Gap and Banana Republic stores and 4 percent at Old Navy. International comps slipped 4 percent.

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“Color was a trend that everybody took advantage of,” said Glenn Murphy, chairman and chief executive officer on a conference call with analysts. “Our team did a very good job of that. In general, our product teams stepped up really nicely in this first quarter.”

Murphy said Old Navy redesigned its T-shirt business in the quarter and the Gap brand put more money into its bottoms business. The company’s online sales rose 18 percent and the ceo said he would continue to fund that business to gain market share.

The 20.1 percent drop in J.C. Penney Co. Inc. first-quarter sales might have helped the company some, but it’s not a dynamic Murphy expects to continue.

“We’re not really tracking it directly,” he said in response to an analyst’s question. “When somebody in a quarter only leaks out 20-plus percent of sales in a business that sizable, I would say that I can’t think of anybody in the value business didn’t get some benefit from it.…That team there [at Penney’s], I’m not speaking for them, but they’re going through a lot of unique work to change their business model, so this is just one of those quarters that happens. And nobody here is sitting back and thinking it’s sustainable in terms of the amount of business they’re releasing.”

Gap modestly raised its 2012 earnings estimate to $1.78 to $1.83 a share, up from the $1.75 to $1.80 previously projected.

The company operates 3,026 stores and has another 244 doors run by partners. In its own stores, square footage decreased by 2 percent from a year earlier, reflecting the company’s efforts to optimize its North American presence. It closed 42 company-operated doors in the first quarter and opened 32.

Aéropostale Inc. also weighed in after the market closed, reporting a steep profit drop. The retailer said net income for the first-quarter ended April 28 fell 35.4 percent to $10.6 million, or 13 cents a diluted share, from $16.4 million, or 20 cents, last year. Sales rose 6 percent to $497.2 million from $469.2 million. The company said comparable-store sales, including its e-commerce channel, rose 2 percent compared with a 5 percent decline last year.

Thomas P. Johnson, Aéropostale’s ceo, said he was “pleased with the sequential progress” the company is making in its business. He cautioned that the retail environment remains uncertain and that the company is still “early in the cycle of executing our key initiatives.”