Gap beats expectations, raises dividend
4:14 PM, E.T. | February 24, 2011U.S.
Gap Inc. (GPS-N) posted a rise in quarterly profit Thursday that beat the expectations of analysts and boosted its dividend as the apparel retailer strives to spur sales growth at its main casual chain.
The operator of the Gap, Old Navy and Banana Republic brands also gave a 2011 profit outlook that was above Wall Street's average estimate.
Gap said the focus in 2011 would be to continue remodeling its large Old Navy stores, focusing on a smaller format, while opening company-owned and franchise stores abroad.
Net income in Gap's holiday fourth quarter rose 3.7 percent to $365 million US, or 60 cents per share, from $352 million, or 51 cents per share, a year earlier.
Analysts, on average, had expected earnings of 57 cents per share, according to Thomson Reuters I/B/E/S.
As previously reported, revenue rose nearly 3 percent to $4.36 billion, as same-store sales, a key measure of retail performance, were flat.
A turnaround in the company's main Gap chain has been slow in coming and the head of that casual brand was recently replaced.
Gap has been revitalizing its merchandise to spur shopper loyalty, but sales have remained inconsistent, despite improvements, and Chief Executive Glenn Murphy has expressed frustration.
Although Gap shares have been rising since the beginning of the year, they have not reached the nine-year high of $26.21 gained in April of last year as the stock market rallied and confidence grew in the economic recovery.
The company faces intense competition from a host of retailers selling casual American fashion and some analysts say its stores are too large and its fashion inconsistent.
Sourcing costs will drive down operating margins during fiscal 2011, Gap said. The higher price of cotton and petroleum-based synthetics has increased the cost of making garments for all apparel makers.
Still, Gap gave a 2011 profit outlook that was above Wall Street's estimates. It said 2011 earnings would range between $1.88 and $1.93—above the $1.86 expected by analysts.
Also Thursday, department stores Macy's Inc. (M-N) and Kohl's Corp. (KSS-N) posted gains in fourth-quarter profit that were better than expected and in line with expectations, respectively.
Old Navy, which sells lower-cost fashions to families, has been remodeling its stores to a smaller and easier-to-shop format. It said some 400 stores would be remodeled by the end of 2011.
Moreover, the company will open about 50 company-owned stores internationally—including 10 to 15 new stores in China—and about 75 franchise stores during the year.
Capital expenditures in 2011 will increase to about $575 million from $557 million last year due to the international store openings and Old Navy remodels.
Gap increased its quarterly dividend to 45 cents per share for fiscal 2011 from 40 cents per share in 2011.