Gap's 1st-quarter net income declines 22 percent

Staff Writer
Columbus CEO

NEW YORK (AP) — Gap said that its first-quarter profit fell 22 percent, as the clothing chain's results were hampered by foreign currency fluctuations and a slow start to spring selling.

Nevertheless, the San Francisco-based retailer, which operates stores under the Gap, Old Navy and Banana Republic names, reiterated its annual profit outlook.

"After a disappointing start, I'm pleased with how the business performed toward the end of the quarter, especially at Old Navy," said Glenn Murphy, chairman and CEO of Gap Inc. in a statement. "We are confident in our strategies to drive long-term value, as evidenced by the reaffirmation of our full-year guidance."

Like many retailers, Gap's business in the first quarter was hurt by a series of winter storms that chilled sales earlier in the year. Still, it's faring better than rivals like American Eagle Outfitters Inc., which saw its quarterly earnings tumble 86 percent on huge markdowns intended to generate foot traffic. American Eagle said earlier in the week that it would close 150 stores over the next three years.

Nevertheless, Gap's results underscore the challenges that the company faces in keeping the momentum going since enjoying a turnaround starting in early 2012. Gap has been stepping up its marketing and offering trendier merchandise.

Gap is also expanding outside the U.S. It announced last month it plans to more than triple sales in China in three years as it seeks to grab a bigger piece of the overall $1.4 trillion global clothing market. It generated $300 million in sales in China in the latest fiscal year ended Feb. 1. It says China will be its biggest growth initiative.

The company had 81 Gap stores in China at the end of last year and unveiled its first Old Navy store in the country earlier this year. It said Thursday it's on track to open about 30 additional Gap stores in China in the current fiscal year.

Gap is also trying to meld its online business with its physical stores as it sees shoppers' purchases influenced by the Web and mobile devices.

As part of that strategy, the chain is expanding a program it began testing a year ago that allows customers to reserve merchandise online and then pick it up at the store within 24 hours. By the end of the second quarter, it will have that service in all of Gap-branded stores. Overall, the service will be in more than 1,000 Gap and Banana Republic stores.

Gap earned $260 million, or 58 cents per share, in the three-month period ended May 3. That compares with $333 million, or 71 cents per share, in the year-ago period.

Revenue rose 1.2 percent to $3.77 billion.

Analysts had expected a profit of 57 cents on revenue of $3.76 billion, according to FactSet.

Revenue at stores opened at least a year fell 1 percent in the quarter. By division, Gap's global business fell 5 percent in the quarter, while Banana Republic slipped 1 percent. Old Navy's global business rose 1 percent.

Online sales increased 13 percent to $575 million for the first quarter.

Gap said that it still expects earnings per share for the year to be in the range of $2.90 to $2.95 per share. Analysts had expected $2.94 per share.

Shares added 16 cents to $41.02 in after-market trading after closing up 30 cents to $40.86 in regular trading.


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