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Gap Puts Focus on North America

“We were not happy with 2011,” the retailer's chairman and ceo Glenn Murphy told shareholders at its annual meeting.

SAN FRANCISCO — North America will be the key region for Gap Inc. this year.

“We were not happy with 2011,” Gap chairman and chief executive officer Glenn Murphy told shareholders at the retailer’s annual meeting here Tuesday. Last year, North American same-store sales dipped 3 percent at Gap and 6 percent at Old Navy, while remaining flat at Banana Republic. The company’s net income fell 17 percent to $833 million, and net sales slid 1 percent to $14.5 billion.

Murphy pledged there would be improvement in 2012. He said Gap is dedicated “first and foremost to grow in our domestic North American business, which is critical to the company’s strategy.” He added the management team is “motivated, committed and determined to make sure we stand in front of our shareholders next year and talk about the great success the company’s had.”

Sabrina Simmons, Gap’s executive vice president and chief financial officer, elaborated, “After five years of extremely disciplined expense management coupled with a focus on international investments, we plan to invest more in our domestic businesses in 2012. With greater confidence in our product, we plan to invest in areas like marketing and store payroll. However, we are committed to being prudent about the level of investment depending upon our momentum and our likely return.”

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In addition to enhanced marketing plans, where Murphy said the concentration would be on the “Gap brand globally and Banana Republic,” he stressed Gap has worked since fall 2011 to elevate product in key categories “where we know we can win, where we can really dominate and beat the competition.” In the first quarter of this year, he noted, “We are seeing some progress. It’s early days.”

Gap’s emerging retail concepts will also propel growth, according to Murphy. He highlighted the group’s decision to open its first Piperlime store in September at 121 Wooster Street in New York’s SoHo neighborhood, and the expansion of Athleta. Gap opened 10 Athleta stores in 2011 and expects to open 25 in 2012. It is on pace to have 50 stores by 2013. “We are really excited about not only what Athleta has done, but what Athleta can do for Gap Inc.,” said Murphy.

The health of Gap’s North American business is crucial to its standing abroad. Murphy underscored Gap’s mission is to share “American style around the world.” “As we go out around the world and compete against the likes of H&M and Inditex and Uniqlo, the American style component, how that gets interpreted inside of each one of our brands in a distinctive way, is critical to this organization, and this company succeeding on a global stage,” he said.

When it comes to spreading its global reach, Murphy said Gap’s goal is for international and online revenues to account for 30 percent of the business in 2013, up from 26 percent in 2011. Gap’s franchised operations will be an important part of achieving that goal. Murphy said Gap’s franchised business jumped 47 percent last year, when franchises opened in eight new countries. Overall, he detailed, Gap entered its 40th country in the first quarter of this year — Panama — and can operate in 90 countries around the world. Of the 40 countries where it is present, Gap operates in 34 of them via franchises.

One of the key focuses will be China, where Gap anticipates opening 30 stores this year.

Summarizing Gap’s efforts for the year, Simmons said, “It’s our objective to drive modest top-line growth through the stabilization of our base businesses and a continuation of our global growth initiatives which are focused on our online, outlet and franchise channels.” So far this year, she emphasized, “We are pleased that our first-quarter 2012 performance represents meaningful progress against our priorities, including delivering 6 percent total revenue growth.”