Gap Inc. added $100 million to its bottom line in the first quarter and a bit more to its online sales total.
This story first appeared in the May 24, 2013 issue of WWD. Subscribe Today.
The San Francisco-based company, the largest U.S.-based apparel retailer, recorded a 42.9 percent increase in net income, to $333 million, or 71 cents a share, from $233 million, or 47 cents, in the year-ago period. The earnings per share figure was 2 cents better than the 69 cents analysts, on average, had expected. The company’s operating margin grew to 14.2 percent of sales from 11.3 percent in the first quarter of last year.
Total revenues grew 6.9 percent to $3.73 billion, ahead of the $3.68 billion consensus estimate and against year-ago sales of $3.49 billion. Worldwide revenues of the firm’s two biggest brands grew at virtually the same rate and to almost the same levels, with Gap up 5.7 percent to $1.464 billion and Old Navy up 5.6 percent to $1.459 billion. Same-store sales were up 2 percent overall, with Gap and Old Navy posting identical 3 percent gains and Banana Republic flat.
Other brands — Athleta, Piperlime and Intermix — registered a 66.3 percent increase in revenue, to $148 million. The 2013 number includes Intermix, acquired in January; the 2012 figure does not.
In a late afternoon conference call with analysts Thursday, Glenn Murphy, chairman and chief executive officer, drew particular attention to the firm’s 26.6 percent increase in online revenues, which advanced to $509 million from $402 million. “While the majority of that base was in the United States, we are seeing really strong growth in Canada, Europe, China and now in Japan,” where Gap opened nine Old Navy stores during the first quarter.
Responding to an analyst’s question, Murphy talked about the potential of the “seamless” omnichannel experience being sought by Gap and other retailers. “I can see this coming, sooner rather than later, where more traffic begins online than actually starts in the store,” he said, later adding that the integration of supply chain through various channels could move the firm’s operating margin from its current home in the midteens to the high-teens, where “the people with the highest operating margin in our industry” reside.
While pleased with the topping of profit and sales estimates, analysts and investors were disappointed with Gap’s reiteration of its full-year EPS projection of $2.52 to $2.60 despite the first-quarter strength. Sabrina Simmons, chief financial officer, said the company was exercising caution in light of both the weakening of the yen against the dollar and the relative shortness of this year’s fourth quarter, a 13-week period versus 14 weeks in 2012.
Shares, which gained 32 cents, or 0.8 percent, to close at $41.36 during Thursday’s New York Stock Exchange session, backtracked after the close, settling a $40, down 3.3 percent, in after-hours trading.