Byline: Jennifer L. Brady

NEW YORK — Driven by strength at Banana Republic and Gap Kids stores, The Gap Inc. reported third-quarter earnings gained 18.7 percent while sales increased 10 percent.
Earnings rose to $93.6 million, or 64 cents a share, from $78.9 million, or 54 cents, a year earlier. Earnings were slightly ahead of Wall Street’s mean estimate of 61 cents a share.
Sales grew to $988.3 million from $898.7 million, but same-store sales fell 2 percent.
Donald G. Fisher, chairman and chief executive officer, noted that the company was able to show higher earnings despite the decline in same-store sales. Gross margins improved to 38.3 percent from 37.8 percent, while operating expenses as a percentage of sales were reduced to 23 percent from 23.3 percent.
Fisher said Banana Republic “turned in an impressive performance in the quarter.”
Warren Hashagen, senior vice president of finance, said in a telephone interview that while all divisions were ahead of the year-ago quarter, Banana Republic and Gap Kids led the rest. At Gap Stores, he noted that women’s apparel continues to fare better than men’s wear.
In the nine months ended Oct. 29, earnings climbed 35.1 percent to $201.5 million, or $1.38 a share, from $149.1 million, or $1.03. Sales rose 12.4 percent to $2.5 billion from $2.2 billion and same-store sales were up 2 percent.
NatWest Securities analyst Robert Buchanan said the latest results were a “mixed bag” for the company. He noted that the Gap Stores division was weak, with same-store sales down 5 percent in the quarter. He added that the division was hurt
by sluggish sales of women’s fashion-forward apparel, such as floral patterns. Schoolgirl looks sold well, he noted.
In contrast, Banana Republic racked up an 8 percent same-store sales gain and Gap Kids same-store sales increased 2 percent.
Janet Mangano, of Burnham Securities, noted that gross margins were slightly better than she expected, attributing the rise to a good mix of fashion apparel, particularly at Banana Republic. She estimates The Gap will earn $2.20 this year against $1.78 last year.
Buchanan noted that the company has kept tight control of inventories, with stocks up 8 percent in the quarter.
The fourth quarter, added Buchanan, faces tough comparisons, particularly in terms of margins, and he expects to see “some moderation in earnings growth.” He estimates The Gap will earn 84 cents a share against 75 cents in the year-ago quarter. He looks for $2.23 a share for the full year.
Gap stock, traded on the New York Stock Exchange, closed Thursday at 37 3/4 down 1/4.
At the end of the quarter, the company operated 877 Gap Stores, 354 Gap Kids branches, 184 Banana Republic units and 62 Old Navy/Gap Warehouse stores.
— Fairchild News Service

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