Specialty retailer Gap Inc. (GPS) said Thursday its third quarter profit increased 25% from last year, driven by higher margins and improved sales at Old Navy stores. Quarterly earnings were in line with analysts' expectations, while revnues came in ahead of estimates. The company's board has also authorized a new $500 million share repurchase program, effective immediately.
The San Francisco, California-based company posted net earnings of $307 million for the third quarter, up 25% from $246 million in the prior year quarter. Earnings per share rose to $0.44 from $0.35 in the previous year quarter. On average, 26 analysts polled by Thomson Reuters expected the company to report earnings of $0.44 per share for the third quarter. Analysts' estimates typically exclude special items.
As a percentage of sales, gross margin increased by 380 basis points to 42.5%. Operating margin improved to 13.9% from 11.1% in the year-ago quarter.
Third quarter net sales increased 1% to $3.59 billion from $3.56 billion in the same quarter last year. Twenty-three analysts had a consensus revenue estimate of $3.58 billion for the third quarter.
Comparable store sales for the quarter were flat, compared to a 12% drop a year ago.
Segment wise, sales at Gap North America dropped 8% to $987 million with a 7% decline in the comparable store sales.
Banana Republic North America sales fell 4% to $541 million, while comparable store sales decreased 6%.
Sales of Old Navy North America improved 8% to $1.3 billion, as its comparable store sales rose 10%.
International sales grew 2% to $378 million, but comparable store sales fell 6% over a year ago.
The company's online sales, or Gap Inc. Direct sales, increased 5% to $298 million over a year earlier.
Operating expenses for the third quarter increased to $1.02 billion from $984 million in the prior year quarter, due largely to investments in fall marketing at Gap and Old Navy stores.
In a separate development, Gap said that its board has authorized a new $500 million share repurchase program, effective immediately.
In connection with the share repurchase authorization, Gap said it has entered into agreements with individual Fisher family members to repurchase shares. The company expects that about $20 million or about 4% of the $500 million share repurchase program will be purchased from these Fisher family members.
During the third quarter, the company repurchased about 4.1 million shares for $91 million. About 0.6 million of the total 4.1 million shares were repurchased from individual members of the Fisher family as part of previously announced purchase agreements with them.
The company opened 13 store locations and closed 15 store locations during the quarter. It ended the quarter with 3,143 store locations, and net square footage decreased about 0.3% over last year.
The company continues to expect opening about 50 stores and close about 100 stores for fiscal year 2009, including repositions. The company continues to expect that net square footage will decrease about 2% over a year earlier.
In a move to regain its market share, and boost sales, Gap last month announced various strategies including its international expansion, and restarting of television advertisement.
The company said it would open its first Gap store in China in 2010. The company also plans to expand the presence of its Outlet store internationally, and launch online businesses in Canada and the United Kingdom in 2010.
Gap brand also said it will begin television advertising in November, following a two-year absence.
For the nine-month period of 2009, Gap reported net earnings of $750 million or $1.07 per share, up from $724 million or $1.00 per share in the previous year period.
Net sales for the period decreased to $9.96 billion from $10.44 billion in the prior year period.
With the hard times restricting discretionary spending, retailers in general have been experiencing a tough time. However, Gap is better placed than most of its peers due to inventory management and cost control. Indications of a revival in the economy have reflected in Gap's comparable store sales, or sales at stores open for at least 12 months.
Among others in the industry, Abercrombie & Fitch Co. (ANF) last week reported lower profit for the third quarter, hurt by sharp decline in comparable store sales, despite a one-time benefit.
Urban Outfitters Inc. (URBN), another specialty retailer, posted an increase in its third-quarter profit, as sales grew helped by better performance at its Anthropologie stores.
Gap closed Thursday's regular trading session at $21.86, down 44 cents or 1.97% on a volume of 9.71 million shares. In the after-hours, the shares further lost 33 cents or 1.51%.
The stock has been moving in a range of $9.41 - $23.36 for the past 52 weeks, with an average daily volume of about 9.59 million shares for the past three months.
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