In the second quarter, Gap Inc. expanded its e-commerce reach from one country to 55 through international shipping, making Old Navy available for the first time to customers outside of North America.Gap Inc. reported earnings per share for the second quarter, which ended July 31, 2010, increased 9 percent to $0.36 per share on a diluted basis, compared with $0.33 per share on a diluted basis last year. Net earnings grew 3 percent to $234 million compared with $228 million for the second quarter last year.

“Our economic model helped us deliver both sales and earnings growth for the second quarter, while we navigated some challenges along the way,” said Glenn Murphy, chairman and chief executive officer of Gap Inc. “Looking forward, we’re committed to our strategy of growing sales and market share in North America as we also invest in our long-term global and online growth initiatives.”

In the second quarter, Gap Inc. expanded its e-commerce reach from one country to 55 through international shipping, making Old Navy available for the first time to customers outside of North America. In addition, the company expects to launch dedicated e-commerce sites this month in Canada and the United Kingdom. By the end of the year, the company expects to have stores in China, Italy and Australia, which combined with its expanding online and franchise operations, will reach customers in a total of about 80 countries.

Second Quarter Financial Highlights

• Diluted earnings per share increased 9 percent to $0.36 from $0.33 last year.

• Net sales increased 2 percent to $3.32 billion compared with $3.25 billion last year.

• Gross profit grew 2 percent to $1.31 billion compared with $1.29 billion last year.

• Operating margin increased 40 basis points to 12.0 percent compared with 11.6 percent last year. This is the highest second quarter operating margin in a decade.

• About 38 million shares were repurchased for $799 million during the quarter, and a new $750 million share authorization underscores the company’s commitment to returning excess cash to shareholders.

Sales Results Second quarter net sales were $3.32 billion compared with $3.25 billion for the second quarter last year. The company’s second quarter comparable store sales increased 1 percent compared with a decrease of 8 percent for the second quarter last year. The company’s online sales for the second quarter of fiscal year 2010 increased 15 percent to $258 million compared with $224 million for the second quarter last year.

Additional Results and 2010 Outlook

Earnings per Share The company reiterated its guidance for fiscal year 2010 diluted earnings per share of $1.77 to $1.82, which represents a 12 to 15 percent increase compared with $1.58 per share last year.

Operating Margin The company continues to expect that the operating margin for fiscal year 2010 will be about 13 percent.

Share Repurchases During the first half of fiscal year 2010, the company repurchased about 52 million shares for $1.1 billion.

In a separate release , the company announced that its Board of Directors authorized a new $750 million share repurchase program. This brings the company’s total share repurchase authorizations in fiscal year 2010 to $1.75 billion.

Cash and Cash Equivalents and Short-term Investments The company ended the second quarter with $1.7 billion in cash and cash equivalents and short-term investments. Year-to-date, free cash flow, defined as net cash provided by operating activities less purchases of property and equipment, was an inflow of $292 million compared with an inflow of $589 million last year. Please see the reconciliation of free cash flow, a non-GAAP financial measure, from the GAAP financial measure in the tables at the end of this release.

Effective Tax Rate The effective tax rate was 41.2 percent for the second quarter of fiscal year 2010 and 39.3 percent for the first half of fiscal year 2010.

The company continues to expect that the effective tax rate will be about 39 percent for fiscal year 2010.

Inventory On a year-over-year basis, the company reported that inventory per square foot was up 12 percent at the end of the second quarter of fiscal year 2010. Inventory per square foot at the end of the second quarter was reduced by about 2 percentage points due to a shift in shipping terms with certain vendors. The company shifted terms in response to market conditions that were causing an increase in inventory in transit.

Depreciation and Amortization The company continues to expect depreciation and amortization expense, net of amortization of lease incentives, for fiscal year 2010 to be about $550 million.

Capital Expenditures Year-to-date, capital expenditures were $248 million. The company continues to expect fiscal year 2010 capital expenditures to be about $575 million. The increase from fiscal year 2009 is primarily driven by Old Navy store remodels, new international store openings, and the online launch in the United Kingdom and Canada.

Real Estate During the second quarter of fiscal year 2010, the company opened 10 store locations and closed 19 store locations.

The company ended the second quarter of fiscal year 2010 with 3,076 store locations, and net square footage decreased about 2 percent compared with the second quarter of fiscal year 2009.

Year-to-date, the company has opened 19 stores weighted towards international and closed 38 stores weighted towards Gap brand.

The company continues to expect that it will open about 65 stores, weighted towards international and that it will close about 110 stores, weighted towards Gap brand. In addition, the company continues to expect that net square footage will decrease about 3 percent in fiscal year 2010.
POST: 2024-11-25