Gross profit up at Gap Inc

21 Aug '10

5 min read

Gap Inc. reported earnings per share for the second quarter, which ended July 31, 2010, increased 9 percent to $0.36 per share on a diluted basis, compared with $0.33 per share on a diluted basis last year. Net earnings grew 3 percent to $234 million compared with $228 million for the second quarter last year.

“Our economic model helped us deliver both sales and earnings growth for the second quarter, while we navigated some challenges along the way,” said Glenn Murphy, chairman and chief executive officer of Gap Inc. “Looking forward, we're committed to our strategy of growing sales and market share in North America as we also invest in our long-term global and online growth initiatives.”

In the second quarter, Gap Inc. expanded its e-commerce reach from one country to 55 through international shipping, making Old Navy available for the first time to customers outside of North America. In addition, the company expects to launch dedicated e-commerce sites this month in Canada and the United Kingdom. By the end of the year, the company expects to have stores in China, Italy and Australia, which combined with its expanding online and franchise operations, will reach customers in a total of about 80 countries.

Second Quarter Financial Highlights

• Diluted earnings per share increased 9 percent to $0.36 from $0.33 last year.
• Net sales increased 2 percent to $3.32 billion compared with $3.25 billion last year.
• Gross profit grew 2 percent to $1.31 billion compared with $1.29 billion last year.
• Operating margin increased 40 basis points to 12.0 percent compared with 11.6 percent last year. This is the highest second quarter operating margin in a decade.
• About 38 million shares were repurchased for $799 million during the quarter, and a new $750 million share authorization underscores the company's commitment to returning excess cash to shareholders.

Sales Results
Second quarter net sales were $3.32 billion compared with $3.25 billion for the second quarter last year. The company's second quarter comparable store sales increased 1 percent compared with a decrease of 8 percent for the second quarter last year. The company's online sales for the second quarter of fiscal year 2010 increased 15 percent to $258 million compared with $224 million for the second quarter last year.

Additional Results and 2010 Outlook

Earnings per Share
The company reiterated its guidance for fiscal year 2010 diluted earnings per share of $1.77 to $1.82, which represents a 12 to 15 percent increase compared with $1.58 per share last year.

Operating Margin
The company continues to expect that the operating margin for fiscal year 2010 will be about 13 percent.

Share Repurchases
During the first half of fiscal year 2010, the company repurchased about 52 million shares for $1.1 billion.

In a separate release , the company announced that its Board of Directors authorized a new $750 million share repurchase program. This brings the company's total share repurchase authorizations in fiscal year 2010 to $1.75 billion.

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