Gap Profit Tops Estimates as Deep Discounts Draw Shoppers

Gap Inc., the biggest U.S. apparel-focused retailer, posted fourth-quarter profit that exceeded analysts’ estimates as deep discounts drew wary shoppers during the holiday season.

Net income for the quarter ended Feb. 1 fell 13 percent to $307 million, or 68 cents a share, from $351 million, or 73 cents, a year earlier, the San Francisco-based company said in a statement yesterday. That exceeded the 66-cent average of analysts’ estimates compiled by Bloomberg. Sales slipped 3.2 percent to $4.58 billion.

Chief Executive Officer Glenn Murphy is working to maintain sales growth as apparel retailers cut prices in an attempt to keep shoppers coming into malls. As frigid weather persisted in much of the country in February, Gap forecast earnings per share in its current fiscal year of as much as $2.95, below analysts’ estimates for $3.03 a share.

“The retailers are all very cautious because the start of 2014 is not great,” Poonam Goyal, a retail analyst for Bloomberg Industries, said in an interview. “I would be surprised if they guided to Street expectations because based on how the year started, how can you be positive?”

Gap rose 0.2 percent to $43.75 at the close of trading in New York. The shares gained 12 percent this year, compared with a 0.6 percent increase in the Standard & Poor’s 500 Index.

China Stores

The retailer said in a separate statement it will open its first Old Navy store in China on March 1. The company has operated Gap brand stores in the Asian nation for three years. Gap will open five Old Navy stores in China in fiscal 2014, Robert Frank, Old Navy’s executive vice president of international, said in the statement.

The retailer said earlier this month that sales at stores open at least a year increased 1 percent in the fourth quarter. Same-store sales at the Gap brand increased 1 percent, compared with a 2 percent gain a year earlier, Gap said Feb. 6. Comparable-store sales at Old Navy were little changed after an 8 percent increase last year, and sales at Banana Republic declined 3 percent, compared with a 3 percent increase the previous year.

“This is the eighth consecutive quarter of same-store sales growth in a really tough environment,” Dorothy Lakner, a New York-based analyst at Topeka Capital Markets, said in a phone interview. “The first few weeks of December were really tough, and the weather was horrible. They were trying really hard to find new ways to excite the customer.”

Lakner recommends buying the shares.

Gap will raise its hourly pay for U.S. employees to $9 an hour in 2014 and $10 next year, the company said Feb. 19. While the company generally pays more than the minimum wage in most markets, the move is a strategic investment and “the right thing to do” for employees, Jack Calhoun, global brand president of Banana Republic, said after the announcement.

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