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Gap Inc. Reports Strong Second Quarter Results And Revises Fiscal Year 2013 Outlook Upward

Gap Inc. (NYSE:GPS) today reported that second quarter diluted earnings per share increased to $0.64, compared with $0.49 last year. Given its progress year-to-date, the company raised its estimate for fiscal year 2013 diluted earnings per share to be in the range of $2.57 to $2.65.

“We delivered strength in both our top and bottom lines this quarter,” said Glenn Murphy, chairman and chief executive officer of Gap Inc. “As we move into the second half of the year, we remain focused on growing revenue and driving continued momentum across our portfolio of brands.”

Positive customer response to our assortments drove net sales for the second quarter, which ended August 3, 2013, to increase 8 percent to $3.87 billion compared with $3.58 billion for the second quarter last year. Net sales increased 10 percent on a constant currency basis. In calculating net sales growth on a constant currency basis, current year foreign exchange rates are applied to both current year and prior year net sales. This is done to enhance the visibility of underlying business trends, excluding the impact of foreign currency exchange rate fluctuations.

Due to the 53 rd week in fiscal year 2012, comparable sales for the second quarter of fiscal year 2013 are compared with the 13-week period ended August 4, 2012. On this basis, the company’s second quarter comparable sales increased 5 percent compared with a 4 percent increase in the second quarter last year.

Second Quarter 2013 Financial and Business Highlights

  • Positive 5 percent comparable sales versus positive 4 percent last year, driven by strength in its largest global brands: Gap and Old Navy.
  • Second quarter gross margin increased 60 basis points to 40.5 percent; operating margin expanded by 160 basis points to 13.5 percent.
  • Net earnings were up $60 million, or 25 percent compared with the second quarter last year.
  • The company announced its intention to increase its annual dividend per share from $0.60 to $0.80 beginning in the third quarter of 2013. This represents a 60 percent increase over the fiscal 2012 dividend per share of $0.50.
  • In line with its strategy to expand Old Navy internationally, today the company is announcing plans to open the brand’s first store in Shanghai and launch an Old Navy e-commerce site in China in the first half of 2014. In addition, the company ended the quarter with 10 Old Navy stores in Japan, on pace to open 15 to 20 stores for the year.
  • The company continued to expand its Gap store base in mainland China, opening 6 additional stores, for a total of 55 stores. In addition, today the company is announcing its intention to bring its Gap brand to Taiwan with its first store opening in the first half of 2014, along with a Gap e-commerce site.
  • Gap Inc. opened 6 Athleta stores in the second quarter, for a total of 46 stores open to date, and the brand is on pace to end fiscal 2013 with about 65 stores.
  • The company continued to build upon its online success with 27 percent online sales growth in the quarter, in part driven by its industry-leading omni-channel platform for consumers, inclusive of ship-from-store, find-in-store and reserve-in-store capabilities.

Second Quarter Comparable Sales Results

Comparable sales by global brand for the second quarter of fiscal year 2013 were as follows:

  • Gap Global: positive 6 percent versus positive 3 percent last year
  • Banana Republic Global: negative 1 percent versus positive 6 percent last year
  • Old Navy Global: positive 6 percent versus positive 3 percent last year

Net Sales Results

The following table details the company’s second quarter net sales:

($ in millions)   Gap Global  

Old Navy Global

 

Banana Republic Global

  Other (2)   Total  

Percentage of Net Sales

Quarter Ended August 3, 2013
U.S. (1) $ 894 $ 1,406 $ 566 $ 170 $ 3,036 79 %
Canada 96 115 54 1 266 7 %
Europe 188 22 210 5 %
Asia 254 19 38 311 8 %
Other regions   39     6     45 1 %
Total $ 1,471 $ 1,540 $ 686 $ 171 $ 3,868 100 %
 
($ in millions) Gap Global

Old Navy Global

Banana Republic Global

Other (2) Total

Percentage of Net Sales

Quarter Ended July 28, 2012
U.S. (1) $ 840 $ 1,283 $ 560 $ 100 $ 2,783 78 %
Canada 83 106 52 241 7 %
Europe 176 21 197 5 %
Asia 265 2 42 309 9 %
Other regions   40     5     45 1 %
Total $ 1,404 $ 1,391 $ 680 $ 100 $ 3,575 100 %

(1) U.S. includes the United States, Puerto Rico, and Guam.(2) Includes Piperlime, Athleta, and fiscal year 2013 includes Intermix.

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