NEW YORK – Clothing retailer Gap Inc. (GPS) said on Thursday its quarterly earnings ticked up 1 percent, buoyed by improved profit margins, but hemmed in by weakness at its Old Navy (search) and international Gap stores.
The company posted earnings for the third quarter of $265 million, or 28 cents per share. In the same period last year, it reported earnings of $263 million, or 28 cents per share.
Gap's results were in line with Wall Street analysts' average forecast for earnings of 28 cents per share, according to Reuters Estimates.
Early in the quarter, fewer customers forced the company to make bigger markdowns on goods, as record high gas prices and waning consumer confidence sapped demand, but the company countered that by adjusting its promotions, marketing and in-store selling strategies, Gap president and CEO Paul Pressler (search) said.
Gap's shares rose to $22.71 on the Inet electronic brokerage system from $22.54 at its close on the New York Stock Exchange (search).
"Sales were weaker during the earlier part of the quarter, and then they ended up posting positive [comparable-store sales], so that helped," said Marsha Jong, retail analyst at Sanders Morris Harris. "People are accepting that it was a tough retail environment, and it looks like Gap with their holiday assortment is stronger than in the fall."
The company said its earnings results include $10 million of pretax expenses related to premiums paid on the early retirement of $122 million of debt.
Gap's third-quarter net sales rose 1 percent to $4.0 billion, but its sales at stores open a year or more, a key retail gauge known as same-store sales, fell 1 percent.
Same-store sales at the company's U.S. Gap stores rose 2 percent and rose 3 percent at its Banana Republic chain, but slipped 1 percent at its Old Navy stores and tumbled 10 percent at its international Gap stores.
Net sales at U.S. Gap stores were flat at $1.3 billion, while Gap International sales fell to $440 million from $476 million last year. Banana Republic net sales ticked up to $538 million from $512 million last year, while Old Navy's sales rose to $1.7 billion from $1.6 billion.
The company said its operating expenses, however, rose only 5 percent from last year, well below Gap's prior estimate of a 11 percent rise, primarily due to lower bonus accruals, marketing spending and store expenses, Byron Pollitt, the company's chief financial officer, said..
Despite recent weakness at its overseas operations, Gap announced separately on Thursday that it plans to bring its Banana Republic brand to Japan with three stores set to open in Tokyo in the fall of 2005 and more store openings planned for the spring of 2006.
"Although we are disappointed with recent [same-store sales] in our international division, we've seen strong growth over the long term since Gap entered Europe in 1997 and Japan in 1995," Pressler said.
For fiscal 2004, the company said it expects to open about 125 store locations and close about 160 of them, but net square footage is expected to remain flat.