Gap back on trend: profit rockets

ANALYSIS_ Gap Inc. is back on trend after a long struggle to strike the savvy’s consumer’s chord. The owner of eponymous label Gap, Old Navy and Banana Republic has reported a 43 percent hike in its first-quarter net income.

“We are pleased with our strong start to the year, especially first-quarter sales,” proudly stated Glenn Murphy, chairman and CEO of Gap, in a statement on Thursday. “The consumer has been operating pretty much for the last five-plus years in a very challenging environment,” Murphy told analysts in a call.

Revenue at stores opened at least a year better up by 2 percent with global businesses at both Gap and Old Navy increasing by 3 percent respectively. Impressive hike at their online business, as revenue jumped 27 percent. Banana Republic's global division was unchanged from a year ago.

CFO Sabrina Simmons said on the call with analysts that results also benefited from a shift in the calendar.

Consumer’s confidence boosts earnings

“This is the first quarter in a long time that the consumer, to us, felt like they were moving in a more positive direction,” CEO at the American fashion group recognised.

The first-quarter earnings beat Wall Street expectations, helped by a rise in same-store sales at its Old Navy and Gap chains and growth in Asia, as highlighted market insiders Thursday.

Gap reported earnings of 333 million dollars or 71 cents per share, in the three-month period ended May 4. That compares with 233 million dollars, or 47 cents per share, a year earlier. Revenue rose 7 percent to 3.73 billion dollars, slightly better than the analysts’ consensus estimate of earnings at 69 cents per share on revenue of 3.73 billion dollars.

“This is a very common pattern” for Gap, explained Stephanie Wissink from Piper Jaffray to Bloomberg. “They beat by a penny or two and reiterate. Over time the full-year inches up.” The analysis firm currently has an ‘overweight’ rating on the stock.

Data collated by FactSet data shows that Gap already has received more than 30 price target increases in 2013 so far. Several came last week, after the San Francisco-based apparel seller said first-quarter sales rose 7 percent from the same quarter a year ago to 3.73 billion dollars.