Tags: gap | earnings | retail | shoppers

Gap's Profit Drops on Heavy Discounting

Thursday, 27 February 2014 05:16 PM

Gap Inc. reported a 12.5 percent drop in fourth-quarter profit on a 3 percent decline in revenue as the clothing retailer was forced to discount heavily over the holiday shopping season to entice customers.

The clothing chain, which operates Gap, Old Navy, Banana Republic and Athleta, also issued a profit outlook for the full year that's below analysts' expectations.

The results issued Thursday come after Gap, like many retailers, finished a brutal holiday season marked by heavy discounting to help attract shoppers who've been cautious about spending in a still sluggish economy. Gap did its part by offering constant sales. Still, it's faring better than other clothing rivals like Abercrombie & Fitch, which reported on Wednesday a 58 percent drop in fourth-quarter profit on a 12 percent decline in revenue.

The results underscore the challenges that Gap faces in keeping the momentum going since enjoying a turnaround starting in early 2012. Gap has been stepping up its marketing and offering trendier merchandise. In 2012, the company also announced a management overhaul to help it respond more quickly to shifting tastes around the world.

The retailer reported net income of $307 million, or 68 cents per share, in the three-month period ended Feb. 1. That compares with $351 million, or 73 cents per share, in the year-ago period, which included an extra week.

Gap posted revenue of $4.58 billion, down from $4.73 billion.

Analysts were expecting 65 cents per share on revenue of $4.58 billion for the quarter, according to FactSet.

Revenue at stores opened at least a year — a key gauge of a retailer's health — rose 1 percent.

Gap expects earnings per share in the range of $2.90 to $2.95 for the current year. Analysts had expected $3.02 per share, on average.

Gap also said its board authorized a 10 percent increase in its quarterly dividend. The company will pay out 22 cents per share on April 30 to shareholders of record April 9. That's up from the last dividend of 20 cents.

In after-hours trading, Gap shares traded at $42.95, down 73 cents.

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Gap Inc., the biggest U.S. apparel-focused retailer, posted fourth-quarter profit that exceeded analysts' estimates as deep discounts drew wary shoppers during the holiday season.
Thursday, 27 February 2014 05:16 PM
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