NEW YORK, N.Y. – Gap Inc. reported a 61 per cent increase in fourth-quarter profits on Thursday, capping a strong year that saw the company’s turnaround take hold.
The San Francisco-based company, which operates stores under its namesake, Banana Republic and Old Navy brands, also said that it’s raising its annual dividend to 60 cents from 50 cents per share for the current year. The company offered a muted profit outlook. Shares rose in after-hours trading.
The company’s latest performance, which includes the critical holiday period, shows how the company’s efforts to push brightly colored fashions, new designer collaborations and lively marketing campaigns are helping to invigorate sales after struggling for years to reclaim its fashion status.
“At the end of the day, we are looking at the consumer and saying we have to continue to give her reasons to buy,” Gap CEO Glenn Murphy told investors during a conference call. “If you’re going to win in this environment, doing the same thing all over again is not a winning strategy. We have to bring more and more uniqueness, differentiation and excitement to the business.”
Among the recent standouts, says Murphy, were what Old Navy marketed as “rock star jeans”, denim leggings.
Gap earned $351 million, or 73 cents per share, in the quarter ended Feb. 2. That compares with $218 million, or 44 cents per share, a year earlier.
Revenue rose 10 per cent to $4.73 billion in the period.
Analysts expected 71 cents per share on revenue of $4.69 billion, on average.
Revenue at stores opened at least a year rose 5 per cent. The measure is a key indicator of a retailer’s health. By division the metric at Gap’s North America division rose 4 per cent, Banana Republic’s North America division was up 3 per cent, while Old Navy’s North America division rose 8 per cent. The company’s international division’s business fell 2 per cent.
For the year net income rose 36 per cent to $1.1 billion, up from $833 million. Revenue rose 7.6 per cent to $15.6 billion.
Companywide, revenue at stores opened at least a year rose 5 per cent, with every division except its international business posting increases.
It’s been a long climb back up. After turning basics like T-shirts and khakis into must-have fashions in the 1990s, the company fell out of favour starting in the early 2000s. Under Murphy, the chain closed or shrank stores and cut inventory to boost its profits over the past several years. But a revolving door of executives hadn’t been able to solve the biggest problem: shoppers weren’t buying its clothes unless they came with a fat discount.
In particular, poor fit and lack of exciting fashions including drab colours hurt the company’s flagship brand for most of the decade. The Gap brand has also been increasingly squeezed in the middle, between cheap chic fashion purveyors like Swedish retailer H&M and Forever 21 at the bottom, and higher-priced options like Abercrombie & Fitch and J.Crew at the top.
Gap, however, appears to be striking the right chord these days. It’s worked hard to turn around its business, from staff changes to new ad campaigns and partnerships with other designers. A few examples: Gap Kids partnership with Diane Von Furstenberg and Banana Republic’s partnership with AMC’s hit show “Mad Men.”
The company has also hired new talent. The Banana Republic division brought in fashion designer Narciso Rodriguez who began serving as an adviser to the brand starting with the fall 2013 collection.
The Gap brand already had brought back Tracy Gardner as creative adviser. She made an imprint on holiday fashions. Gardner, a former J. Crew executive, worked at Gap and Banana Republic in the late 1990s and early 2000s. Last fall, the San Francisco company hired Stef Larsson, former head of global sales for trendy fashion retailer H&M, as president of the Old Navy brand.
Gap announced last October a management overhaul aimed at enabling it to respond more quickly to changing tastes around the world. The change, which took effect this month, put the North American, international, online, outlet and franchise divisions under a single global executive for each of the company’s brands. The company also formed a new innovation and digital strategy team to further advance its efforts in that area.
The company is looking for new opportunities overseas, particularly China.
Gap’s first-quarter dividend of 15 cents per share will be paid on or after May 1 to shareholders of record at the close of business on April 10.
The company expects to earn $2.52 per share to $2.60 per share this year. That’s below analysts’ consensus estimate of $2.59 estimate, according to FactSet. Gap cited the weakening yen as a factor.
Shares rose 76 cents, or 2.3 per cent, to $33.68 in after-hours trading, after climbing 44 cents to close at $32.95. Shares have soared nearly 80 per cent since the beginning of last year amid evidence of a turnaround.