NEW YORK — With a healthy parade of fall fashion hits and marketing coups to its credit, Gap Inc. demonstrated that it is indeed a retail destination as third-quarter profits nearly doubled.

This story first appeared in the November 21, 2003 issue of WWD. Subscribe Today.

The San Francisco-based specialty giant continued to make huge strides in its comeback, as quarterly earnings rose 94.1 percent for the three months ended Nov. 1 to $262.6 million, or 28 cents a diluted share, a penny ahead of the most recent consensus estimate of 27 cents and in line with its guidance earlier this month of 26 to 28 cents. Last year, the firm reported earnings of $135.3 million, or 15 cents.

Gap, which operates a fleet of 4,210 stores in 3,075 locations, reported sales for the quarter of $3.93 billion, an increase of 7.8 percent over sales of $3.64 billion for the same period last year and up 6 percent on a same-store sales basis. All units posted comp gains, with Banana Republic up 11 percent, Old Navy up 6 percent and Gap up 5 percent.

“Compared to a year ago, our product assortment this fall was more sharply edited and focused,” Paul Pressler, Gap’s president and chief executive, said on an afternoon conference call.

Despite unseasonably warm weather and the Northeastern blackout, Pressler said Gap delivered a “solid overall performance” due to a more disciplined approach to its growth strategy and evolving consumer-focused initiatives.

Byron Pollitt, chief financial officer, said on the call that the third quarter’s solid results were against the toughest comparison the company has faced since it started to deliver profit increases in the second quarter of 2002.

He noted that all three divisions were “clearly driving strong product acceptance with our customers as evidenced by strong regular-price selling and merchandise margins.”

On the real estate front, Gap said square footage for the third quarter decreased by 2 percent. In total for 2003, it said it expects square footage to fall 2 percent, noting it will open about 35 locations, mostly Old Navy, and close 135, mostly Gap. For 2004, it said it anticipates square footage to remain flat, with the opening of 125 doors, mostly ON, and the closing of 125, mostly Gap.

Year-to-date profits rose 194.8 percent to $674.3 million, or 72 cents, compared with $228.7 million, or 26 cents. Sales climbed 11.9 percent to $10.97 billion over $9.8 billion and moved up 9 percent on a comp basis.

Among the other specialty retailers joining the avalanche of earnings reports issued on Thursday:


Limited Brands said its third-quarter profits soared 722 percent, as strength in Victoria’s Secret and Bath & Body Works offset an operating loss in its apparel division.

The Columbus, Ohio-based company said reported earnings for the three months ended Nov. 1 rose to $129.7 million, or 25 cents a diluted share, from $15.8 million, or 3 cents per share, a year earlier. Subtracting special items, Limited finished the quarter 1 cent above analysts’ earnings estimates of 4 cents per share.

On an adjusted basis, quarterly earnings perked up 326.8 percent to $44.3 million, or 8 cents, versus $10.4 million, or 2 cents.

Overall sales for the quarter gained 4.5 percent to $1.85 billion from $1.77 billion and rose 2 percent on a same-store basis. Total apparel sales diminished 1.8 percent to $663.2 million versus $675.4 million, while apparel comps decreased 2 percent. The operating loss in apparel of $8.9 million compared with a loss of $2.8 million in last year’s quarter.

By brand, VS and B&BW comps rose 5 percent and 3 percent, respectively, but were offset by a 2 percent comp drop at Express and flat comps at Limited stores. The company said the Express women’s business was disappointing, as it experienced weakness in key categories including denim and sweaters. Men’s results improved in the quarter with positive comps.

For the nine months, income rose 121.1 percent to $329.2 million, or 63 cents, compared with $148.9 million, or 29 cents. On an adjusted basis, income jumped 14.8 percent to $196.1 million, or 37 cents, compared with $170.9 million, or 32 cents. Sales for the period advanced 4.1 percent to $5.7 billion from $5.48 billion.


Higher gross margin and lower costs offset sagging sales to allow Charming Shoppes Inc. to swing back to profitability in the third quarter.

For the three months ended Nov. 1, the Bensalem, Penn.-based operator of the Lane Bryant and Fashion Bug nameplates, among others, posted net income of $2.2 million, or 2 cents a diluted share, which beat the Wall Street forecast by 3 cents. By comparison, last year the firm recorded a net loss of $290,000, or 0 cents. Excluding aftertax charges of $825,000, or 1 cent, a year ago, Charming Shoppes’ earnings per share would have improved to 1 cent.

Net sales for the quarter dipped 2.2 percent to $530.3 million and comparable-store sales were flat. However, that was more than offset by a 20 basis-point expansion in gross margin to 28.1 percent of sales and a 60 basis-point contraction in selling, general and administrative costs to 26.7 percent of sales, which combined to deliver the better-than-expected bottom-line results.

“The [gross margin] increase was driven by margin improvements at Fashion Bug and Lane Bryant,” said chief financial officer Eric Specter on a conference call with analysts.

Regarding the lower SG&A costs, Specter said despite “a flat to negative sales environment for the quarter, dollar expenditures were lower than plan, as well as lower than last year.”

By store division, Lane Bryant comped down 5 percent during the quarter, mostly due to weak mall traffic, the firm said. Catherine’s Plus Sizes likewise posted a 5 percent comp decrease as higher unit sales were more than offset by eroding traffic. Fashion Bug, however, comped up 6 percent, primarily on higher transaction volume.

Overall, for the first nine months of the fiscal year, Charming Shoppes reported net income of $30.5 million, or 26 cents, versus last year’s net loss of $6.6 million, or 2 cents. Excluding an accounting change in the prior year, net income would have been $42.5 million, or 35 cents, a year ago.

Net sales for the period fell 6.1 percent to $1.7 billion from $1.81 billion a year ago, and same-store sales fell 3 percent.

In guidance, Charming Shoppes said fourth-quarter earnings per share are forecast at 3 to 5 cents.

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