Gap Second-Quarter Profit Rises 25% as Denim Boosts Sales

Gap Inc., the biggest U.S. specialty-apparel retailer, posted a 25 percent increase in second-quarter profit as new denim and athletic products boosted sales at its namesake and Old Navy chains.

Net income for the quarter ended Aug. 3 rose to $303 million, or 64 cents a share, from $243 million, or 49 cents, a year earlier, the San Francisco-based company said in a statement yesterday. That matched the average of analysts’ estimates compiled by Bloomberg. Net sales for the quarter rose 8.2 percent to $3.87 billion.

Chief Executive Officer Glenn Murphy has worked to improve product selections, drawing customers in with denim lines, new athletic wear and low prices. For the full year ending in January, Gap raised its profit forecast to as much as $2.65 a share from a previous maximum of $2.60, contrasting its prospects with other retailers, including Macy’s Inc., which last week cut its full-year earnings forecast.

“For them not to have lowered guidance is a good thing because everyone else did,” Poonam Goyal, a retail analyst with Bloomberg Industries, said in a phone interview. “Overall, they bucked the trend everyone is seeing. The retailers that stand out are the ones with a combination of pricing, marketing and product.”

Gap slipped 0.1 percent to $41.97 at the close in New York. The shares have gained 35 percent this year, the best performance for an apparel company in the Standard & Poor’s 500 Retailing Index.

CEO Sale

Gap said in a filing yesterday that Murphy, on Aug. 20, exercised options over 200,000 shares and sold the stock under the terms of his trading plan with the company. The options were exercised at $16.44 each and the shares sold at $43 apiece, giving Murphy proceeds of $5.3 million.

Sales at stores open at least a year rose 5 percent in the quarter, Gap said. That includes 6 percent gains at both the Gap and Old Navy brands and a 1 percent decline at Banana Republic.

While traffic fell in the first and second quarters, the company benefited from having multiple brands serving different customer profiles, Murphy said on a conference call.

“Given how fragmented the apparel business is, coming to the market with different brands and unique brands and multiple brands into different channels and into different geographies is paying off, as evidenced by this quarter,” Murphy said.

Consumer Environment

Other retailers are experiencing challenges getting consumers to spend on clothing. Abercrombie & Fitch Co. plunged in New York trading yesterday after forecasting profit for the current quarter that was less than analysts estimated amid declining traffic at its stores. American Eagle Outfitters Inc. on Aug. 21 said earnings in its second quarter were hurt by a weak consumer environment and missteps in its women’s clothing offerings.

Gap also said yesterday that it would boost its annual dividend to 80 cents a share, from 60 cents, starting in the third quarter.

“They obviously have had momentum in the business,” Anna Andreeva, a New York-based analyst at Oppenheimer & Co., said in an interview before the results were released. She has the equivalent of a hold rating on the shares. “They’ve executed well from the product standpoint.”

    Before it's here, it's on the Bloomberg Terminal.