WWD.com/globe-news/financial/gap-profits-drop-125-7521640/
government-trade
government-trade

Gap Income Slips, Outlines Plans

Gap Inc. saw fourth-quarter profits drop 12.5 percent but still believes it experienced “a very consistent” 2013.

Gap Inc. saw fourth-quarter profits drop 12.5 percent but still believes it experienced “a very consistent” 2013 and sees brick and mortar increasingly relevant to the business as such initiatives as ship-from-store, order-in-store, and reserve-in-store get rolled out.

“We are actually looking at the role of the store to incrementally increase as these services get provided to customers,” said Glenn Murphy, chief executive officer of Gap Inc., which on Thursday reported that net income for the fourth quarter fell to $307 million, or 68 cents a share on a diluted basis, compared to net income of $351 million, or 73 cents a share, in the year ago period.

Murphy said the vast majority of customers prefer to get engaged with Gap Inc. online, but then go to the store to see and buy the products, though often with a cellphone to engage in social media. “This digital bridge is critical for us.”

Gap’s net sales for the period ended Feb. 1 declined to $4.58 billion, compared with $4.73 billion for the year-ago period. Fourth-quarter comparable-store sales were up 1 percent, and Gap upped its quarterly dividend by 10 percent to 22 cents from 20 cents.

Net income for the year was $1.28 billion, or $2.74 a share on a diluted basis, compared with net income of $1.14 billion, or $2.33 a share, the year before.

Net sales increased 5 percent on a constant currency basis to $16.15 billion from $15.65 billion for the 2012 fiscal year. Comparable-store sales rose 2 percent.

RELATED CONTENT: WWD Earnings Tracker >>

Murphy said Gap “comped in every quarter….It was a very consistent year. I am pretty confident we gained share again for the second year in row, especially in North America.” He also said that the business made a “cultural shift toward digital,” adding, “It takes a long time to make that mind-set shift but in 2013 we did it. It’s so important to get the right balance between the physical and digital messaging.”

Murphy outlined a year ahead filled with initiatives for growth and programs to build customer loyalty and provide greater service, including:

• Intensifying the marketing on find-in-store and reserve-in-store services.

• Expanding Athleta to 100 stores, from the current 65. Athleta in 2013 had a “breakout year” and is on a path to become Gap’s fourth major brand, Murphy said.

• Opening 60 global outlets.

Among the other initiatives discussed:

• Old Navy will open its first store in China on Saturday, in Shanghai; launch franchise stores in the Philippines, and roll out 25 more stores in Japan.

• An assortment that’s much more global, with a global label and a global fit, will be offered.

• Reserve-in-store will be in all Gap stores, and was in half at the end of the fourth quarter.

• Order-in-store will be piloted in the first half.

• Personalization on the Web will become more evident, including “homepages that matter to people,” Murphy said. “It could [also] be a category or certain promotions. It’s a stepping stone to loyalty. The testing has been going well.”

• There will be a lot more testing of products and in the second half, the company will introduce a “rapid response” model in which you can react in season.

• The second quarter will mark the start of order-from-store capability for consumers, involving mobile devices and kiosks.

• Casual pants will be a big play for Old Navy in 2014.

Murphy also said the company is working to develop a seamless inventory model, so for example in China and with Athleta, inventory on the same shelves can be shipped to a store or to someone’s home.

“It was a good year on top of our performance in 2012” that centered on “building the bridge between digital and physical, and retaining and attracting the best talent in the industry,” the ceo said.

Going forward, the objective is to deliver “modest, positive comps” on a full-year basis, and earnings per share from $2.90 to $2.95.

Among the areas Murphy cited for potentially strong returns on investment: Old Navy International expansion, omnichannel initiatives and seamless inventory. And on Athleta, he said, “I am getting happier with that acquisition, and looking forward to 2014.”