Gap Sees Earnings Almost Double
Gap Inc., the nation’s largest specialty apparel retailer, said third-quarter earnings nearly doubled as TV ads, including those featuring Madonna and Missy Elliott, pulled customers into stores and improved operations helped turn sales gains into larger profit.
It was the San Francisco-based company’s fifth consecutive quarter of earnings growth.
The parent of 4,200 Gap, Old Navy and Banana Republic stores earned $263 million, or 28 cents a share, compared with $135 million, or 15 cents a share, in the same period last year.
Sales rose 8% to $3.9 billion. Sales at stores open at least a year, a key gauge of a retailer’s health, rose 6% with all divisions posting better results.
Gap has been working to rebuild its business after 29 consecutive months of declining sales that ended in October 2002.
Pressed by analysts during a conference call to categorize how the turnaround is progressing, Chief Executive Paul Pressler said it is still in “the early innings.”
“We think we’ve made tremendous strides over the last year,” he said, “but we still think there’s tremendous opportunity as we go forward.”
Although the company faces tougher comparisons as it enters the holiday season, Pressler said he was confident about the current strategy, which includes improved product design, better customer service and encouraging shoppers to fully outfit themselves when they shop in Gap stores.
In addition, the company’s advertising has become more focused with TV ads targeting men and women separately. Old Navy will target Latinos with Spanish-language TV ads this holiday season for the first time. The spots will start airing Sunday.
Regarding future growth plans, Pressler said the company would continue to leverage initiatives such as expanding maternity clothes in Gap and Old Navy stores and offering more petite sizes in Banana Republic stores.Traffic picked up in the company’s stores during the quarter, especially Banana Republic, the priciest division, and Old Navy, a lower-priced family-oriented chain, the company said. Tighter inventory and fewer markdowns helped boost profit margins.
Gap’s stock, which has gained 49% over the last 12 months, closed Thursday at $20.99, up 6 cents, on the New York Stock Exchange. The earnings were reported after the market closed.
