Tags: Gap | earnings | rebound | 2011

Gap Pushes for Strong Earnings Rebound

By    |   Friday, 17 February 2012 08:11 AM

Clothing retailer Gap (GPS) has broken a four year string of double-digit earnings growth with an expected sharp decline in 2011 net profits. The company now says it has put management processes in force to allow for an earnings rebound from that poor showing.

Gap owns the established retail brands of Gap, Banana Republic and Old Navy. Recently, two new brands — Piperlime and Athleta — have been added. The company designs and develops merchandise for sales in the company-owned stores in the United States and through owned and franchised locations internationally. Piperlime is sold exclusively through an online store.

Gap closes out its fiscal year at the end of January. For the year ending Jan. 31, 2011, the company has issued earnings guidance of $1.40 to $1.50 per share and the Wall Street consensus estimate is earnings of $1.54.

These results would be about 15 percent below the $1.88 earned in 2010. For the period from 2007 through 2010, Gap reported compound earnings growth of 19 percent per year. The poor showing in 2011 was in part due to a crisis in the production of cotton, resulting in higher material prices.

The company also experienced poor same-store sales results throughout the year.

International emphasis

One path the Gap is taking for renewed growth is working toward growth in the company's online and international revenues. The goal is to take revenue from these sources to 30 percent of sales from the current 20 percent level by the end of 2013.

Both Banana Republic and Old Navy brand stores will open in Europe and Asia. To restart U.S. growth numbers, the company has reorganized the design teams and processes with a goal of bringing new, popular designs to stores in a shorter time frame.

The Gap currently pays an 11.25 cent quarterly dividend, giving the stock a 2 percent yield. The company has a history of steady, annual dividend increases.

Recently, the analysts at Standpoint Research downgraded GPS to a hold from the previous buy rating. The same analysts had upgraded the stock to buy just one month earlier, prior to a sharp stock price increase.

The company next reports on Feb. 22.

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Friday, 17 February 2012 08:11 AM
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