Gap Profit Tops Estimates as Old Navy Boosts Sales

Gap Inc., the largest U.S. apparel-focused retailer, posted second-quarter profit that topped analysts’ estimates as bargain-hunting shoppers snapped up discounted clothing at its Old Navy chain.

Net income rose 9.6 percent to $332 million, or 75 cents a share, from $303 million, or 64 cents, year earlier, the San Francisco-based company said in a statement yesterday. Excluding a gain from an asset sale, profit was 70 cents a share. Analysts had estimated 69 cents, on average, according to data compiled by Bloomberg. Net sales rose 2.9 percent to $3.98 billion in the period, which ended Aug. 2.

Chief Executive Officer Glenn Murphy is working to maintain sales growth as the choppy economic recovery restrains shoppers’ appetites for new fashions. The chain’s lower-priced Old Navy brand led the company’s sales gains for the second straight quarter. Companywide same-store sales were little changed in the second quarter, compared to a 5 percent increase last year.

The stock rose 5.2 percent to $45.43 at the close in New York. Gap shares have gained 16 percent this year, compared with a 7.6 percent increase in the Standard & Poor’s 500 Index.

In a separate statement, Gap said it would open its first namesake-brand stores in India in 2015 through franchise partner Arvind Ltd. The first stores will open in Mumbai and Delhi, and the retailer plans to have about 40 stores in the country.

Preliminary Results

The company had reported preliminary results earlier this month, saying profit was expected to be 68 cents to 69 cents a share on an adjusted basis and that sales would be $3.98 billion.

The Gap chain posted a same-store sales decline of 5 percent in the second quarter, compared with a 6 percent increase in the same period a year earlier. Sales by that measure at Old Navy rose 4 percent, versus a 6 percent gain last year. Banana Republic’s comparable-store sales were little changed.

Gap is investing $300 million in technology over the next three years to improve online and in-store services with features such as self-checkout and online reservations for in-store pickup. Online net sales increased 11 percent to $515 million last quarter, the company said.

Gap has expanded its selection of athletic apparel at its namesake, Old Navy and Athleta brands to capitalize on a growing trend of workout clothes worn as fashion items. The retailer also has added alternatives to denim, including zippered sweats and capri track pants.

Denim Fades

“The denim cycle is not particularly strong right now,” Howard Tubin, a New York-based analyst at Royal Bank of Canada in New York, wrote in a note to clients before the results were released. “The influx of soft bottom ‘jogger’ pants, wide-leg silk pants, and athletic-inspired leggings has moved the importance of denim to the back of shoppers’ minds.”

The Banana Republic brand introduced its first collection last month influenced by Marissa Webb, who joined the brand as creative director in April.

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