Gap’s Profits Nearly Double During First Quarter

Michael Teague  |

Hiring new designers and producing more attractive advertising campaigns have been two key components of San Francisco, California-based Gap Inc’s (GPS) comeback in recent times.

The company’s earnings report, released in late trading on Thursday, tells the story succinctly. For the first quarter of 2013, Gap logged a net income of $333 million, or $0.71 per share on revenue of $3.73 billion, against the prior-year period during which the company netted $223 million, or $0.47 per share on revenue of $3.49 billion. EPS beat expectations by $0.02 per share.

2012 was somewhat of a comeback year for the company, as a turnaround strategy brought new looks from the Gap and its other well-known brands like Old Navy and Banana Republic, that once again found favor with the U.S. consumer. Gap currently takes in some 86 percent of its revenue from North American sales, and for 2013 has expended more effort in foreign markets.

Unsurprisingly, sales in Europe came up flat, due to the open-ended recession across the continent. But is Asia, where Gap has sought to make inroads in China, and has pushed its Old Navy brand in Japan, revenue was up almost 15 percent. The company opened two new stores in China during Q1, bringing the total to 49, and plans for more expansion.

Despite the almost 43 percent increase in profits, however, Gap did not increase its guidance for the rest of 2013. Profits for the full year remain as previously forecast, between $2.52 and $2.60 per share, shy of analyst forecasts of $2.72 per share.

Still, the company reported not only a 6.9 percent increase in revenue, but also a 2 percent company-wide increase in sales at stores open for more than one year. Same store sales figures are a key metric for assessing growth in retail companies.

That the company did not raise its forecast for the remainder of the year in part explains why shares did not jump in late trading, but instead lost some 2.22 percent to $40.44, after closing the day’s session on a 0.78 percent gain to $41.36.

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