Clothing retailer Gap Inc. beats recently raised expectations

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Posted 8:39AM on Friday, May 17, 2002

SAN FRANCISCO - Gap Inc.'s sales sagged in the first quarter and profit was down 68 percent from a year ago, but the company had some good news, too: it reported its first money-making quarter since the second quarter of 2001. The results, announced late Thursday, beat Wall Street's expectations that were upgraded last week after the San Francisco chain announced better-than-expected sales and profit margins for April and raised its first-quarter outlook. In the three months ended May 4, Gap earned $36.7 million, or 4 cents per share, compared with net income of $115.5 million, or 13 cents per share, in the year-ago period. Analysts polled by Thomson Financial/First Call had expected Gap to earn 2 cents per share in the first quarter. The estimate had been for a loss of 4 cents per share until last week, when the company said that it expects to report profits in the range of 2 cents to 3 cents. The company, which been struggling with poor sales in its namesake division, Banana Republic and Old Navy, reported a 9 percent decrease in sales to $2.9 billion during the first quarter, from $2.3 billion in the year-ago period. Sales at stores opened at least a year, known as same-store sales, were down 17 percent, from a year ago. The company has seen 24 consecutive months of declining same-store sales, and its executives acknowledged in a conference call Thursday that its turnaround is far from complete. Summer-themed merchandise at Gap and Banana Republic isn't selling any better than the stores' spring assortments, though some improvement can be seen at Old Navy stores, chief executive Millard Drexler told financial analysts. "Our results haven't yet caught up with our efforts," Drexler said. Gap plans to do more to create a cleaner, simpler, more brand-specific feel in its stores and advertisements in hopes of regaining the "trust and loyalty of our customers," Drexler said. "We're confident we can take back business we walked away from," he said. "We turned off a lot of our customers in the last year when they couldn't find what they wanted to find." ------ On the Net: http://www.gap.com