Specialty Numbers: Gap Stars as Markdowns Hit Competition

Gap Inc. scored twice on Thursday, once with strong second-quarter earnings and again by coaxing Patricia DeRosa out of her retirement.

With more customers spending more money in its stores, Gap chief financial officer Byron Pollitt was enthusiastic in describing what drove the numbers. “The second-quarter results reflect continued momentum in our business. Our performance further demonstrates our ability to generate strong earnings and comps when we effectively execute against our strategy,” he said.

It came down to meeting the public’s expectations, he said. “We delivered a better experience for our customers. We are working to ensure that top-line success translates into bottom-line growth.”

Dana Telsey, a retail analyst with Bear, Stearns, said, “They are making progress in product and advertising and with Leo Burnett, and they are targeting the customer that is appropriate for each brand.” Leo Burnett USA is a strategic branding partner for the Gap and Banana Republic brands.

“The Gap’s recent fall delivery, invested heavily in corduroy and basic denim, appears to be working,” wrote Lazard Frères’ Slater, adding that recent marketing efforts featuring Madonna and Missy Elliott appear to be attracting older, as well as younger, shoppers.

Gap, which operates 4,230 store concepts at 3,095 locations, decreased net square footage by 1 percent in the quarter and it reiterated its guidance for 2003 of an expected 2 percent decline in square footage for the full year.

For the first half, income catapulted 340.6 percent to $411.8 million, or 44 cents a diluted share, versus income of $93.5 million, or 11 cents, reported in the corresponding period last year. Sales for the six months surged to $7.04 billion, an increase of 14.3 percent over sales of $6.16 billion for the same period last year, and increased 11 percent on a comp basis.


Despite ongoing problems in its apparel business, Limited Brands continues to sizzle at Victoria’s Secret and is beginning to show signs of life at Bath & Body Works, as its second-quarter profits climbed 22.5 percent.

Its anemic apparel business, however, is about to receive a promotional makeover.

The Columbus, Ohio-based specialty retailer said net income rose to $102 million, or 19 cents a diluted share, for the three months ended Aug. 2, ahead of its initial expectations and 3 cents ahead of Wall Street’s average estimate of 16 cents. That compares with earnings of $83.2 million, or 16 cents, in the year-ago period. Sales for the quarter were $2.01 billion, a 5.3 percent increase over sales of $1.91 billion, and same-store sales rose 3 percent.
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