GAP’S NET UP 0.7%, PACE BY OLD NAVY
Byline: Diane E. Picard
NEW YORK — Led by its red-hot Old Navy division, Gap Inc.’s fourth-quarter earnings rose 10.7 percent to $171.2 million, or 62 cents a share, on a 9.5 percent sales gain.
Last year, the retailer earned $154.6 million, or 54 cents.
“Our results demonstrate the strength of our balanced portfolio of apparel brands, with Gap, Banana Republic and Old Navy all improving their profitability in 1996,” Millard S. Drexler, president and chief executive officer, said in a statement.
“We’ve now grown our earnings per share at a compound annual growth of 22 percent over the last three years and 21 percent over the last 10 years. We remain committed to increasing shareholder returns through a combination of an active share repurchase program and growth in all our core businesses,” Drexler said.
Per-share amounts reflect the two-for-one stock split in March.
Sales for the three months ended Feb. 1 rose to $1.66 billion from $1.52 billion. Same-stores sales rose 3 percent.
The Gap division’s comps were down in the low single digits, while Banana Republic was up slightly.
But Old Navy’s comp-store sales were ahead strongly, and GapKids’ same-store sales were up in the low single digits.
Gap did not break out specific sales gains by division.
“I’m most impressed by Old Navy,” said Todd Slater, analyst at Lazard Freres. He said the division has achieved roughly $800 million in revenues and $80 million in profit in its three-year history.
“Old Navy’s popular price position and young target market make a 10 percent margin all the more impressive,” he said.
He praised Gap for successfully managing growth and mature businesses simultaneously in a highly competitive retail environment while delivering consistent earnings growth, year after year.
Jay J. Meltzer, managing director at LJR/Redbook Research, told WWD, “They didn’t set the world on fire this time, but we weren’t expecting that from them.”
However, Gap’s earnings per share were slightly ahead of Meltzer’s estimate of 61 cents.
Meltzer said Gap is planning to increase its inventory levels in the near future.
He noted that in its analysts’ call, Gap said it had lost some business because it lacked some inventory and that at the end of the quarter, inventory was “a little high.”
Still, he said, it was “good inventory, not carried-over from the fall.”
Meltzer said the company is trying to make some merchandising changes to avoid back-to-school problems. Suggesting that Gap has been asleep during that season while other chains have prospered, Meltzer said Gap “will be addressing that this year.”
He added, “The product will be different than the year-ago to overcome that sure-fire problem in August.” He added that the San Francisco-based retailer will have to “jack up” advertising and promotional costs, which could hinder margin improvements against last year’s levels.
According to Meltzer, Gap said in its analysts’ call that it is planning to accelerate openings, with 275 stores to debut in 1997.
That includes 70 Gaps, 70 GapKids, 30 Banana Republics, 75 Old Navys and 30 Gap and GapKids stores overseas.
For the year, earnings increased 27.9 percent to $452.8 million, or $1.60. Sales rose 20.2 percent to $5.28 billion. Same-store sales were ahead 5 percent.
At the end of the year, the company operated 938 Gap Stores, 226 Banana Republics, 497 GapKids and 193 Old Navy stores, for a total of 1,854 stores, up from 1,680 stores a year ago.
Overall, Gap operated 12.6 million square feet of retail space, up 14 percent from the 11.1 million square feet a year earlier.