Gap clocks 6% sales rise in Q2 FY'12

Operating Expenses

Second quarter operating expenses were approximately $1 billion, up $85 million compared with the second quarter last year, due primarily to investments in marketing and store payroll.

Marketing expenses for the quarter were $147 million, up $33 million compared with the second quarter last year, driven primarily by investments at Gap brand.

The company plans to continue investing in its businesses and expects operating expenses in each of the remaining quarters of fiscal year 2012 to increase, on a year-over-year basis, by at least as much as the increase in the second quarter. As a result, the company continues to expect operating expense deleverage in the second half of fiscal year 2012.

Operating Margin

The company now expects operating margin for fiscal year 2012 to be about 11 percent, up from previous guidance of about 10 percent.

Effective Tax Rate

The effective tax rate was 40 percent for the second quarter of fiscal year 2012. The company continues to expect the full year effective tax rate to be about 39.5 percent for fiscal year 2012. 

Inventory

On a year-over-year basis, inventory dollars per store were down 6 percent at the end of the second quarter of fiscal year 2012. The company expects inventory dollars per store to be down in the low single digits at the end of the third quarter of fiscal year 2012 compared with the end of the third quarter last year.

Cash, Cash Equivalents, and Short-term Investments

The company ended the second quarter of fiscal year 2012 with $2.1 billion in cash, cash equivalents, and short-term investments. Year to date, free cash flow, defined as net cash provided by operating activities less purchases of property and equipment, was an inflow of $673million compared with an inflow of $298 million last year.

The company plans to repay the remaining $360 million balance on its term loan during the third quarter of fiscal year 2012.

Share Repurchases

Second quarter share repurchases were $349 million, and the company ended the second quarter of fiscal year 2012 with 479 million shares outstanding.

Dividends

The company paid a dividend of $0.125 per share during the second quarter of fiscal year 2012, which was an increase of 11 percent compared with the second quarter last year. The company expects to pay a total of $0.50 per share in dividends for fiscal year 2012.

Capital Expenditures

Year to date, capital expenditures were $297 million. The company now expects fiscal year 2012 capital spending of up to $675 million, up from previous guidance of approximately $600 million.

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