Gap Profit Tops Estimates on North American Sales

Gap Inc., the biggest U.S. specialty-apparel retailer, rose after posting fourth-quarter profit that topped analysts’ estimates, fueled by its best holiday shopping season in six years.

Gap climbed 1.4 percent to $33.37 at 10 a.m. in New York. The shares gained 6.1 percent this year through yesterday after a 67 percent increase in 2012.

Net income for the quarter ended Feb. 2 jumped 61 percent to $351 million, or 73 cents a share, from $218 million, or 44 cents, a year earlier, the San Francisco-based company said in a statement yesterday. Analysts on average had projected 71 cents a share, according to data compiled by Bloomberg.

Chief Executive Officer Glenn Murphy is working to maintain last year’s turnaround at Gap’s namesake, Old Navy and Banana Republic brands in North America, which drove the biggest rally for an apparel company in the Standard & Poor’s 500 Retailing Index in 2012. Improved merchandise and marketing, led by new hires, resulted in a 5 percent gain in annual comparable sales, reversing a 4 percent decline a year earlier.

“This remains one of our top picks given a variety of changes including structural improvements and new hires that should help the product remain consistently strong at all brands,” Randal Konik, an analyst at Jefferies Group Inc. in New York, wrote in a note today. Konik, who has a buy rating on the shares, said the firm’s “bullish” call depends on Gap continuing to boost comparable-store sales this spring.

Dividend Increase

Gap also projected profit for the fiscal year in a range of $2.52 to $2.60 a share, an 8 percent to 12 percent increase. Analysts on average estimated adjusted earnings for the full year of $2.30 a share.

The company said in a separate statement that it will raise its annual dividend by 20 percent to 60 cents, its fourth consecutive year of increases.

Fourth-quarter sales rose 11 percent to $4.73 billion, the highest since the quarter ended in February 2007, while revenue for the year increased 7.6 percent to $15.7 billion.

Murphy announced a reorganization of management in October, assigning a single global executive to lead the Gap, Banana Republic and Old Navy brands in an effort to bring together their online, outlet, franchise, North American and international divisions. He also formed a new “Innovation and Digital Strategy” team to support Gap’s e-commerce operations, where sales grew 24 percent to $1.93 billion in the year.

‘Solid Footing’

While regaining market share from rivals such as J. Crew Group Inc. and Hennes & Mauritz AB domestically, Gap’s international comparable sales declined 3 percent, it said yesterday.

The company is going to expand square footage for the first time since 2007, focusing on Old Navy in Japan, more franchise stores, and Athleta openings, Murphy said on an earnings call yesterday.

Gap is set to improve “given the company’s structural reorganization and global perspective by brand,” Konik said in the note.

Last year, Gap hired Stefan Larsson, former head of global sales at Hennes & Mauritz, to lead Old Navy and Jill Stanton, the former vice president of global apparel at Nike Inc., to oversee product design, development and production at the value-oriented chain. The company also hired U.S. designer Narciso Rodriguez as an adviser for Banana Republic and J. Crew executive Tracy Gardner for a similar role at the Gap brand.

Gap, with more than 3,000 stores, is also testing smaller concepts, including Athleta, Piperlime and Intermix Holdco Inc., a luxury retailer it acquired for $130 million last month.

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