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Gap Inc profit drops in first quarter
May '09
Gap Inc reported that net earnings for the first quarter, which ended May 2, 2009, decreased to $215 million, or $0.31 per share on a diluted basis, compared with $249 million, or $0.34 per share on a diluted basis, for the first quarter last year.

First quarter net sales were $3.13 billion, compared with $3.38 billion for the first quarter of last year. The company's first quarter comparable store sales decreased 8 percent, compared with a decrease of 11 percent for the first quarter of last year. The company's online sales for the first quarter of 2009, which includes Athleta, increased 13 percent to $267 million, compared with $236 million for the first quarter of last year.

“We're pleased with the way we navigated the challenging economic environment, and are particularly encouraged by Old Navy's recent performance,” said Glenn Murphy, chairman and chief executive officer of Gap Inc. “We remain focused on increasing traffic and gaining back market share across all of our brands by offering customers the right products and shopping experiences.”

Additional Results and 2009 Outlook
Gross margin of 39.6 percent decreased 10 basis points for the first quarter compared with the prior year.

Operating margin was 11.3 percent for the first quarter of both fiscal year 2009 and 2008.

Operating Expenses
The company reduced operating expenses by $73 million in the first quarter of fiscal year 2009 compared with the prior year. The company expects second quarter operating expenses to be down about $30 million to $50 million compared with last year. Second quarter marketing expenses are expected to increase about $10 million to $15 million versus the prior year.

Effective Tax Rate
The effective tax rate was 39.1 percent for the first quarter of fiscal year 2009. The company continues to expect that the effective tax rate will be about 39 percent for fiscal year 2009.

The company paid a dividend of $0.085 per share during the first quarter.

Cash and Cash Equivalents
The company ended the first quarter with $1.7 billion in cash, cash equivalents, and restricted cash. For the first quarter, free cash flow, defined as net cash provided by operating activities less purchases of property and equipment, was an inflow of $139 million. Please see the reconciliation of free cash flow, a non-GAAP financial measure, from the GAAP financial measure in the tables at the end of this release.

On a year-over-year basis, the company reported that inventory per square foot was down 12 percent at the end of the first quarter. At the end of the second quarter of fiscal year 2009, the company expects inventory per square foot to be down in the low-double digits compared with the second quarter of fiscal year 2008. Please see the Financials section under the Investors tab on gapinc.comfor the company's explanation of numerical range guidance.

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