The Gap Inc.
) posted fourth-quarter and fiscal 2013 results, wherein its
quarterly earnings of 68 cents a share tanked 6.9% year over
year. However, it came ahead of the Zacks Consensus Estimate of
66 cents per share. Results were negatively impacted by the loss
of a week owing to calendar shift.
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This calendar shift also affected nets sales, which slipped 3.2%
to $4.58 billion during the fourth quarter, almost meeting the
Zacks Consensus Estimate of $4.59 billion. However, with
continued focus on developing its omnichannel network, Gap's
quarterly online sales came in at $698.0 million, up 15.9% from
the prior-year quarter.
The company reported a 10.3% fall in its quarterly gross profit
to $1,593 million with the gross margin contracting 280 basis
points (bps) to 34.8%. Operating income during the quarter dipped
13.3% to $522 million, leading the operating margin to shrivel
130 bps to 11.4%. Gap's operating expenses dropped by 8.8% to
$1.07 billion, backed by the company's tough cost management.
Fiscal 2013 Highlights
For fiscal 2013, Gap's earnings soared 17.6% to $2.74 per share,
marginally beating the Zacks Consensus Estimate of $2.73. Net
sales for the year after adjusting for foreign currency
translation, climbed 5%. Reported sales came in at $16.15
billion, compared to $15.65 billion in fiscal 2012, roughly
coming in line with the Zacks Consensus Estimate of $16.16
Sales were driven by comparable store sales, which inched up 2%
during the year. Brand wise, Gap and Old Navy delivered positive
comps of 3% and 2% respectively, partially offset by a negative
1% delivered by Banana Republic. Further, the company's online
sales for the year grew 21% to $2.26 billion, supported by Gap's
This apparel and shoe retailer ended the year with cash and cash
equivalents of $1,510 million, long-term debt at $1,369 million
and total shareholders equity of $3,062 million. Moreover, the
company generated a free cash flow of $1.04 billion and incurred
$670 million as capital expenditure in 2013. Gap expects to spend
$750 million as capital expenditures in 2014, highlighting the
company's focus on investing in its strategic plans.
Dividend & Share Repurchase
During the fourth quarter, Gap paid its shareholders a cash
dividend of 20 cents a share and bought back shares worth $134
million. Also, from the company's $1 billion share repurchase
program authorized in Nov 2013, shares worth $966 were still
remaining at the end of fiscal 2013.
Additionally, with the earnings release, the company announced a
10% hike in its annual dividend for fiscal 2014, to 88 cents a
share from 80 cents currently. Also, for first-quarter fiscal
2014, it declared a dividend of 22 cents per share to be paid to
shareholders of record as on Apr 9, 2014, payable on or post Apr
This fifth consecutive year of the annual dividend hike and Gap's
share buy back program reflect its loyalty towards boosting
shareholder value and returning them excess cash.
In 2013, the company opened 34 new Gap outlets in Mainland China,
bringing the store count in the region to 81 and 17 new Old Navy
stores in Japan. Its Athleta brand's store count was 65 at the
end of fiscal 2013, reflecting the company's emphasis on
promoting fashion cum fitness. Also, Gap was consistently
enhancing its franchise business all through 2013, as it
introduced 70 new stores, covering 40 international markets.
This brings the company's total store count to 3,539 across 48
countries with 3,164 company-operated and 375 franchise outlets,
increasing its company operated floor space by 1% year over year.
Going forward in fiscal 2014, Gap intends to open 185
company-operated outlets, barring relocations, with primary focus
on China, Athleta, Old Navy Japan and global outlet stores. It
also plans to shut down 70 company-operated outlets, net of
relocations. Following this, the company expects net square
footage to increase by 2.5% next year.
In 2014, the company plans to open 30 Gap outlets in China and 25
Old Navy stores in Japan. Gap also intends to introduce Old Navy
in the Chinese market by opening 5 new outlets there, apart from
opening the brand's franchises globally, beginning with
Philippines next month. Also, the company anticipates its
franchise partners to add 75 new outlets, covering all brands
including Banana Republic, Old Navy and Gap.
Looking ahead, Gap envisions earnings per share to lie in a band
of $2.90-$2.95 for fiscal 2014. The current Zacks Consensus
Estimate for 2014 stands at $3.05 per share, which is likely to
undergo a downward revision.
Also, on excluding the expected negative effect of foreign
currency, Gap anticipates operating margin to expand in fiscal
2014. Further, it forecasts inventories to advance by 7% at the
end of the first quarter of fiscal 2014.
Other Stocks to Consider
Gap currently holds a Zacks Rank #3 (Hold). Other better-ranked
stocks in the retail sector include
Christopher & Banks Corporation
) with a Zacks Rank #1 (Strong Buy), along with
Finish Line Inc.
H & M Hennes & Mauritz AB (publ)
) carrying a Zacks Rank #2 (Buy).