(Updates with comments from conference call.)
DOW JONES NEWSWIRES
Casual clothing retailer Gap Inc. (GPS) said on Thursday its
second-quarter profits dropped 0.4%, narrowly beating expectations
even as it posted lower sales across all four of its divisions.
The San Francisco retailer, which is working through a
turnaround, has focused on maintaining leaner inventory, as well as
traffic-driving promotions. In an effort to reinvigorate a brand
that has lost ground to trendier rivals, the Gap launched a premium
denim line earlier this month to compete with pricier lines like
True Religion and 7 for All Mankind.
The Gap's tepid results came on the same day that competitors
The Buckle Inc. (BKE) and Aeropostale Inc. (ARO) posted strong
earnings, underscoring the appeal some flashier brands have with
younger consumers.
Gap Chief Executive Glenn Murphy told analysts on a conference
call that the company intends to make "selective" additional
marketing investments in the next few months in order to boost
market share for the company's Gap and Old Navy brands.
Still, Chief Financial Officer Sabrina Simmons acknowledged the
environment remained difficult, saying the "economy is still
challenging."
For the quarter ended Aug. 1, Gap reported earnings of $228
million, or 33 cents a share, down from $229 million, or 32 cents a
share, a year earlier. The latest quarter had fewer shares
outstanding. Earlier this month, the company projected per-share
earnings of 30 cents to 32 cents, above analysts' estimates at the
time.
The Gap had earlier reported net sales declined 7.3% to $3.24
billion as same-store sales dropped 8%. Same-store sales continued
to fall across all of its divisions. The higher-end Banana Republic
brand posted a 15% same-store sales decline - the largest of a Gap
brand - while the flagship Gap and Old Navy brands were off 10% and
4%, respectively. International sales dropped 5%.
Still, the results at Old Navy were an improvement from a year
ago, when same-store sales slumped 16%. Online sales improved 17%
to $224 million.
Gross margin grew to 39.7% from 38.2%.
Shares rose 1.5% to $19.14 in after-hours trading. The stock has
been rebounding recently, and is up by over a third this year.
Gap was one of a handful of clothiers reporting earnings. Teen
retailer Buckle said fiscal second-quarter profit rose 12% on
continued revenue and margin growth, though sales momentum is
slowing.
Buckle's trendy tops and edgy jeans, as well as its footwear,
have so far helped it ride out the recession. Second-quarter
earnings came to $25 million, or 54 cents a share, beating
analysts' per-share expectations by two cents. Still, the company's
22 straight months of double-digit same-store sales growth ended in
June.
Aeropostale Inc.'s fiscal second-quarter profit jumped 82% as
the teen-apparel retailer reported higher same-store sales.
Aeropostale has easily outperformed more expensive mall retailers.
The company has reported double-digit increases in its same-store
sales in all but two months this year, and last posted a decline in
November. For the quarter ended Aug. 1, Aeropostale reported
earnings of $38.6 million, or 57 cents a share, up from $21.1
million, or 31 cents a share, a year earlier.
Also on Thursday, fellow teen retailer Wet Seal Inc. (WTSLA)
reported a 69% fall in profit, while Pacific Sunwear of California
Inc. (PSUN) and Zumiez Inc. (ZUMZ) both swung to second-quarter
losses on lower same-store sales.
-By John Kell, Dow Jones Newswires; 212-416-2480;
john.kell@dowjones.com
-Ben Charny, Dow Jones Newswires; 415-765-8230;
ben.charny@dowjones.com