Gap Profit Up 43%, Extending Revival
Gap Inc., the nation’s largest specialty apparel retailer, said Thursday that fiscal fourth-quarter earnings rose 43% from the same time last year as better merchandise and tighter control over inventories helped turn sales gains into fatter profit during the key holiday and post-holiday season.
It was the San Francisco-based company’s sixth consecutive quarter of earnings growth.
Net income rose to $356 million, or 37 cents a share, from $248.7 million, or 27 cents, a year earlier, matching analysts’ expectations.
Net sales for the quarter ended Jan. 31 increased 5% to $4.9 billion. Sales at Gap’s 4,147 Gap, Old Navy and Banana Republic stores that have been open at least a year, known as same-store sales, increased 3% for the quarter, compared with an 8% gain a year earlier.
For the year, profit more than doubled to $1 billion, or $1.09 a share, up from $477 million last year. Annual sales rose 10% to $15.9 billion, and same-store sales increased 7%, compared with a decrease of 3% the previous year.
“Our success in 2003 gives us confidence our turnaround is sustainable,” said Paul Pressler, Gap’s president and chief executive, during a conference call with analysts.
Gap has largely been in turnaround mode since Pressler, a former Walt Disney Co. executive, was hired and a 29-month streak of declining same-store sales came to an end in the fall of 2002.
Last year, Pressler noted, Gap cleaned out its real estate portfolio, improved management of its supply chain and introduced technology to help determine when to lower prices on merchandise. More important, though, the company improved cash flow, lowered debt and limited markdowns in January, selling more clothes at full price.
“He’s doing a very impressive job,” Lori Wachs, who helps manage about $85 billion at Philadelphia-based Delaware Management Co., including Gap shares, told Bloomberg News. “The things he is doing are not one-time in nature.”
All of Gap’s chain-store divisions saw their same-store sales increase during the quarter, although the flagship Gap chain rose a slight 2% despite heavy advertising. Banana Republic, the company’s most upscale division, had a 9% increase, while Old Navy saw a 4% increase.
To help solidify the company’s turnaround this year, Pressler said Gap would spend more on marketing and attracting talent. The company also put more focus on refining and separating brands and offering interesting products.
Gap expects to spend $560 million on marketing this year, compared with $509 million the previous year, with more of the budget on Spanish-language TV ads to promote Old Navy and a summer television ad campaign for Gap. In the fourth quarter, Gap hired actor Erik Estrada for its first Old Navy commercials targeting Latinos.
Other spending increases will be on talent, such as new designers, Pressler said. Last month, Pressler hired a former Disney colleague, Cynthia Harriss, to head the company’s outlet division.
One key position Pressler had yet to fill was a Gap division merchandiser. On Thursday, the firm tapped Banana Republic executive Julie Rosen, 38, as head of adult merchandising for the Gap chain. She will report to Gary Muto, president of Gap U.S.
In 2003, Gap opened 35 stores and closed 130 stores, including 10 in Germany. For this year, Gap expects to open 125 stores, mostly Old Navys, and close 135 stores, the majority being Gap. Net square footage is expected to remain flat in 2004, the company said.
Gap lowered its debt load by $626 million last year, leaving it with $2.8 billion of debt, the company said.
Gap’s stock closed Thursday at $21.08 a share, up 3 cents, on the New York Stock Exchange. Earnings were reported after the market closed.
This year, Gap stock has declined 9.2% after soaring 50% in 2003.
