Driven by robust top-line growth and improved margins,
) earnings of 71 cents a share for the first quarter of fiscal
2013 soared 51.1% from the comparable prior-year quarter number
of 47 cents. The company's earnings benefited from a calendar
shift due to 53 weeks in fiscal 2012 and favorable tax
resolution, and were above the Zacks Consensus Estimate of 69
cents per share.
Gap's net sales increased 6.9% year over year to $3,729
million, up from the previous-year quarter figure of $3,487
million and surpassed the Zacks Consensus Estimate of $3,707
million. Moreover, the company registered growth of 2% in its
comps against a 4% rise in the comparable prior-year period.
The company's first-quarter comps mainly benefited from the
continued positive trend in its all global brands, which include
Gap, Banana Republic, and Old Navy. During the quarter, comps at
the company's Gap Global and Old Navy Global increased 3% each,
while comps at Banana Republic Global remained flat year over
Further, the company's online business continues to post
strong results with revenues rising approximately 26.6% to $509
million from $402 million in the year-ago comparable quarter.
During the quarter, Gap's online business contributed about 13.6%
to its total revenue.
We believe that the company's consistent focus on turnaround
strategies for improving the top line is bearing fruit, as
reflected in its solid comps and sales performances in the last 4
Quarter in Detail
Quarterly gross profit surged 12.3% year over year to $1,544
million, while gross margin improved 200 basis points to 41.4%.
The year-over-year increase in gross margin was primarily driven
by improved merchandize margins due to lower average cost per
unit and reduced rent and occupancy expenses as a percentage of
Gap's operating income for the quarter came in at $530
million, up 34.2% from the prior-year quarter figure of $395
million. Moreover, operating margin improved 290 bps to 14.2% due
to an expansion in gross margin and lower operating expenses as a
percentage of net sales.
Balance Sheet, Share Repurchases and Dividend
The company ended the quarter with cash and cash equivalents,
and short-term investments of $1,610 million, compared with
$2,047 million in the year-ago period. The company's shareholder
equity was $3,161 million.
Free cash flow was $205 million compared with $216 million in
the last-year period. In the reported quarter, the company made a
capital expenditure of $151 million and intends to expend $675
million in fiscal 2013. Moreover, Gap spent $58 million toward
share buyback and $70 million toward dividend payment.
The company's inventories were up 8.3%to $1,723 million in the
quarter compared with the prior-year level. Inventory dollars per
store at the end of first quarter increased 3%.
In the first quarter, Gap opened 43 company-operated stores
and shuttered 33 locations, bringing the total company-operated
store count to 3,105. Moreover, in the same quarter, the company
opened 11 franchised outlets, bringing the count to 323. This
brings the company's total store count as of May 4, 2013 to
Fiscal 2013 Outlook
In fiscal 2013, Gap continues to expect earnings in the range
of $2.52-$2.60 per share, increasing 8%-12% from fiscal 2012.
Moreover, the company still anticipates operating margin to be
approximately 13.0% in fiscal 2013, while depreciation and
amortization as well as net of amortization of lease incentives
will likely amount to $475 million.
Further, Gap anticipates an increase in inventory dollars per
store in the mid single-digit range at the end of second-quarter
fiscal 2013 on a year-over-year basis.
In fiscal 2013, the company intends to open 160
company-operated stores and close 80 existing stores. The company
will be mainly focused on opening more Athleta, Gap China, Old
Navy Japan, and global outlets. Store closures will include
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%.
Other Stocks Worth Considering
Currently, Gap carries a Zacks Rank #2 (Buy). Other well
performing stocks among apparel retailers include
American Apparel, Inc.
), all of which have the same rank as Gap.
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