) earnings of 73 cents a share for the fourth quarter of fiscal
2012 soared 65.9% from 44 cents reported in the comparable
prior-year quarter. Further, the quarterly earnings came in above
the Zacks Consensus Estimate of 71 cents.
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For fiscal 2012, the company reported earnings of $2.33 per
share, rising 49.4% from $1.56 per share in fiscal 2011. Earnings
for the fiscal also surpassed the Zacks Consensus Estimate of
During the fourth quarter, Gap's net sales increased 10.3% year
over year to $4,725.0 million from $4,283.0 million in the
previous-year quarter. Moreover, the company registered growth of
5% in its comps against a 4% decline in the prior-year period.
However, quarterly sales missed the Zacks Consensus Estimate of
The company's fourth-quarter comps mainly benefited from the
continued positive trend in its North American businesses, which
include Gap, Banana Republic, and Old Navy. During the quarter,
comps at the company's Gap North America, Banana Republic North
America and Old Navy North America improved 4%, 3% and 8%,
respectively while the company's International business comps
declined 8% year over year.
Net sales for fiscal 2012 increased 7.6% year over year to
$15,651.0 million, while it surpassed the Zacks Consensus
Estimate of $15,583.0 million. In fiscal 2012, comps rose 5%
versus a 4% decline witnessed in fiscal 2011. The rise in comps
was driven by growth in the company's North American comps,
including a 6% rise in Gap North America, 5% increase in Banana
Republic and 6% growth in Old Navy. This was offset by a 3%
decline in international comps.
Quarter in Detail
Quarterly gross profit jumped 26.4% year over year to $1,776.0
million, due to increased sales offset by slightly higher input
costs. Consequently, gross margin expanded 480 basis points (bps)
Gap's operating income for the quarter came in at $602.0 million,
up from the prior-year quarter operating income of $372.0
million. Moreover, operating margin expanded 400 bps to 12.7% due
to an expansion in gross margin. Operating expenses increased
$141.0 million from the previous-year quarter to $1,174.0
Moreover, with efficient inventory management, the company's
inventories were up 8.6% to $1,758.0 million in fiscal 2012
compared with the prior-year level. Inventory dollars per store
at the end of fiscal 2012 increased 5%, which is in line with
Balance Sheet, Share Repurchases and Dividend
The company ended fiscal 2012 with cash and cash equivalents and
short-term investments of $1,510.0 million, compared with
$1,885.0 million in the year-ago period. The company's
shareholders' equity was $2,894.0 million.
Free cash flow for fiscal 2012 was $1,277.0 million compared with
$815.0 million in the last-year period. During fiscal 2012, the
company made capital expenditure of $659.0 million and expects to
expend $675.0 million in fiscal 2013. During the quarter, the
company spent $563.0 million to buy back 18 million shares,
bringing full year share buybacks to 34 million shares for $1
Concurrent with its earnings release, Gap announced plans to
increase to its annual dividend by 20% to 60 cents per share.
Consequently, the company declared a quarterly dividend of 15
cents per share, payable on or after May 1, 2013, to the
stockholders of record as on Apr 10, 2013.
In the fourth quarter, Gap opened 58 company-operated stores and
shuttered 62 locations, bringing the total company-operated store
counts to 3,095. Moreover, in the same quarter, the company
opened 43 stores and closed 2 stores in franchise business,
bringing the total franchise store counts to 312. This brings the
company's total store count as of Feb 2, 2013 to 3,407 million.
Fiscal 2013 Outlook
In fiscal 2013, Gap expects earnings in the range of $2.52-$2.60
per share, an increase of 8%-12% from fiscal 2012. Moreover, Gap
anticipates operating margin to be approximately 13.0% in fiscal
2013, while depreciation and amortization, net of amortization of
lease incentives, is expected to total $475 million.
Further, Gap is expecting inventory per store to increase in the
mid single-digit range at the end of first quarter of fiscal 2013
on a year-over-year basis.
In fiscal 2013, the company expects to open 160 company-operated
stores and close 80 of them. Store openings will mainly be
focused on opening more Athleta, Gap China, Old Navy Japan, and
global outlets. Store closures will be weighted towards shutting
Gap North American outlets, in sync with its previously announced
strategy. In fiscal 2013, the company expects its net square
footage to increase by 1%.
We believe the company's relentless focus on turnaround
strategies for improvising the top line are paying off, which is
reflected in its solid comps and sales performance in the recent
months. The stock currently carries a Zacks Rank #2 (Buy).
Other stocks performing well among the apparel/shoe retailers
), which has a Zacks Rank #1 (Strong Buy),
Foot Locker Inc.
Urban Outfitters Inc.
), both of which have a Zacks Rank #2 (Buy).