Gap Inc re-affirms full year EPS guidance

23 Nov '10

5 min read

Gap Inc reported that earnings per share for the third quarter, which ended October 30, 2010, increased 9 percent to $0.48 per share on a diluted basis, compared with $0.44 per share on a diluted basis last year. Net earnings decreased 1 percent to $303 million compared with $307 million for the third quarter last year.

“We improved the top line and grew our earnings per share this quarter while keeping a clear focus on North America and making strategic global investments, including new market entries in China and Italy,” said Glenn Murphy, chairman and chief executive officer. “Looking ahead, our brands and employees are determined to deliver for our customers this holiday through strong marketing and great product.”

In the third quarter of fiscal year 2010, Gap Inc. expanded its online reach by launching sites in Canada and the United Kingdom and increasing international shipping to more than 80 countries. The company recently opened Gap stores in Shanghai and Beijing with a simultaneous online launch in China. As previously announced, the company also plans to open Gap and Banana Republic stores in Italy.

The company's franchise sales for both Gap and Banana Republic brands for the third quarter of fiscal year 2010 increased 45 percent compared with last year. At the end of the third quarter of fiscal year 2010, the company had a total of 165 franchise stores, including 136 Gap stores and 29 Banana Republic stores, in 22 countries.

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.

Third Quarter Financial Highlights

• Diluted earnings per share increased 9 percent to $0.48 from $0.44 last year.
• Net sales increased 2 percent to $3.65 billion compared with $3.59 billion last year.
• Operating income increased 1 percent to $504 million compared with $500 million last year.
• Gross margin of 41.2 percent and operating margin of 13.8 percent both represent the second best third quarter performance in a decade.
• Year to date, the company repurchased about 67 million shares for $1.4 billion.

Sales Results
Third quarter net sales were $3.65 billion compared with $3.59 billion for the third quarter last year. The company's third quarter comparable store sales were flat for fiscal years 2010 and 2009. The company's online sales for the third quarter of fiscal year 2010 increased 15 percent to $342 million compared with $298 million for the third quarter last year.

Additional Results and 2010 Outlook

Inventory
On a year-over-year basis, the company reported that inventory per square foot was up 9 percent at the end of the third quarter of fiscal year 2010, and noted that inventory per square foot growth for North America was below this figure. Inventory per square foot at the end of the third quarter was reduced by about 2 percentage points due to a shift in shipping terms with certain vendors. The company shifted terms in response to market conditions that were causing an increase in inventory in transit.

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