Gap Inc. (GPS) Q4 Profit Beats Estimates, Shares Rise

Gap Inc. (GPS) Q4 Profit Beats Estimates, Shares Rise

The Gap Inc. (NYSE:GPS) reported its fourth quarter profit and posted an increase in its numbers to $351 million, or 73 cents a share, an increase from $218 million, or 44 cents in the previous year. According to the survey done by FactSet, analysts estimated a profit of 71 cents per share. The sales figure for the quarter came in at $4.73 billion from $4.28 billion. Comparable sales increased by 5 percent.

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For the fiscal 2013, the San Francisco based retailer projected a profit of $2.52 to $2.60 per share, reflecting the effects of the weaker Japanese yen.

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The fourth quarter was high quality for The Gap Inc. (NYSE:GPS) with +480 bps gross margin expansion, counterbalanced by operating expenses reinvested ahead of expectations, says a report from Goldman Sachs. The outlook for 2013 is positive and filled with confidence – even during the difficult last year comparison that would start in February.

The environment for the US retailers has been challenging as consumers are depressed by mainly three factors: rising gasoline prices, a payroll tax hike and delayed tax refunds. The other retailers like J.C. Penney Company, Inc. (NYSE:JCP) shares declined approximately 20 percent after experiencing its sharpest decline in sales. Likewise, Kohl’s Corporation (NYSE:KSS) also posted lower fourth quarter profit.

The Gap Inc. (NYSE:GPS) in the last six years reported its best holiday shopping season as the retailer is gaining from the turnaround strategies it put into motion. There was an increase in the Annual measured media spending by 13% from $302 million to $340 million, according to Kantar Media. In North America, the spending of the company nearly doubled from $21.5 million in 2011 to $54.5 million in 2012. Brands like GAP Old navy and banana republic increased their dividend by 20%.

“The marketing investment was mostly in Gap brand and it was mostly made domestically,” said CEO Glenn Murphy during a conference call with analysts. “That was all about getting the brand back to relevance, getting people to see the incredible equity that is iconic American casual business. The ‘Bright’ campaign was launched 12 months ago. It has been a very good platform for the business.”

CEO Glenn Murphy is making efforts to carry on the turnaround at The Gap Inc. (NYSE:GPS)’s namesake, Old Navy and Banana Republic brands in North America. There have been a significant improvement in merchandise and marketing, backed by new hires like the CMO of The Gap Inc. (NYSE:GPS) Seth Farbman.

“There have been a lot of structural changes and new hires, which we view positively, and the product remains consistently strong at all brands,” said Randal Konik, an analyst at Jefferies Group in New York.

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