Building Up Gap: As Net Climbs 55%, Chain Plots Acquisitions

Gap Inc.’s earnings more than doubled to $312 million in the first quarter on sales that gained 9.4 percent to $3.67 billion.

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Fall Gap looks.

Photo By WWD Staff

NEW YORK — Gap Inc.’s turnaround has legs. And they’re steady enough for the retailer to actively pursue growth opportunities — including an acquisition or two.

Also on Gap’s plate is the launch this July of a women’s plus size line at Old Navy targeting the younger customer, management said on a conference call after posting stellar first-quarter results.

On Thursday, the specialty retailer reported a 54.5 percent jump in net income, boosted by higher sales, better inventory controls and stronger customer response to the merchandise across the retailer’s three distribution channels.

Paul Pressler, president and chief executive officer, said, “We are delighted with the progress we are making in the business.”

He noted that for the company, the turnaround phase has been “all about getting the business back on stable ground.”

Gap Inc. suffered 10 consecutive quarters of negative same-store sales until October 2002 when it posted its first same-store sales gain. Since then, quarterly comps have remained in the black.

The firm has been focused on gaining a deeper understanding of how to serve the Gap customer, elevating the designs at Banana Republic with a focus on affordable luxury, and determining how to maximize the customer segment at Old Navy.

While Pressler said that there’s still more work ahead, Gap is also looking at opportunities that are available. He noted that the company sees “not just one, but multiple opportunities.” One area of focused attention is how to obtain growth within the value sector, the ceo said. Other considerations involve reviewing key customer demographics that are not currently served by the current offerings by each of the three brands.

Net income for the three months ended May 1 skyrocketed to $312 million, or 32 cents a diluted share, from $202 million, or 22 cents, in the year-ago quarter. Sales gained 9.4 percent to $3.67 billion from $3.35 billion, while comparable store sales rose 7 percent on top of last year’s 12 percent comps gain.

Comps were strong in the U.S. The Gap U.S. store division was up 5 percent versus 12 percent last year, while its Gap international business was down 5 percent against a positive 13 percent a year-ago. Sales were essentially flat at $1.2 billion for the U.S. business in the same two time periods, but rose to $437 million from $412 million a year ago for the international operation.
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