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Gap Exceeds Estimates as Athletic Selection Boosts Sales

Gap Inc. reported quarterly profit that topped analysts’ estimates, as sales of low-priced clothing and athletic gear buoyed the results of the biggest apparel-focused retailer in the U.S.

Net income was $260 million, or 58 cents a share, compared with $333 million, or 71 cents, a year earlier, the San Francisco-based company said in a statement yesterday. Analysts had estimated 57 cents on average, according to data compiled by Bloomberg. Net sales rose 1 percent to $3.77 billion in the period, which ended May 3.

While the quarter got off to a slow start, business rebounded near the end of the period, especially at the lower-cost Old Navy chain, Chief Executive Officer Glenn Murphy said in the statement. The company’s total same-store sales rose 9 percent in April, with an 18 percent jump at Old Navy. Still, the full quarter’s comparable-store sales declined 1 percent.

Old Navy is appealing to value-conscious shoppers, especially when it comes to “ath-leisure” apparel, said Howard Tubin, a New York-based analyst at RBC Capital Markets. That category combines athletic and leisure wear.

“We do give management high marks for their take on ath-leisure,” he said in a note to clients before the results. “The price points in this brand are affordable, in keeping with the preferences of the typical Old Navy shopper.”

Gap rose about 1 percent in extended trading after the earnings were released. The company had reported preliminary results earlier this month, saying profit was expected to be in the range of 56 cents to 57 cents a share and sales would be $3.77 billion.

‘Biggest Question’

The company’s flagship Gap chain posted a same-store sales decline of 5 percent in the first quarter, compared with a 3 percent increase in the same period a year earlier. Sales at the Old Navy brand rose 1 percent in the first quarter, versus a 3 percent gain last year. And Banana Republic declined 1 percent, compared with a flat performance the previous year.

“The biggest question that Gap has been dealing with is the sales level: Can the company drive sales and how much will it cost them in terms of margin?” said Simeon Siegel, a New York-based analyst at Nomura. “What people want to know is what sales look like going forward.”

Gap is investing $300 million in technology over the next three years to improve online and in-store services, aiming to provide features such as self-checkout and online reservations for in-store pickup.

The company also yesterday reiterated its earnings forecast for the year of $2.90 to $2.95 a share.

“We are confident in our strategies to drive long-term value, as evidenced by the reaffirmation of our full-year guidance,” Murphy said.

Gap shares have gained 4.6 percent this year through yesterday, compared with a 2.4 percent increase in the Standard & Poor’s 500 Index.

Download: Earnings

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