Company Re-affirms Full Year EPS
Guidance Range of $1.40 to $1.50
SAN FRANCISCO--(BUSINESS WIRE)--Gap Inc. (NYSE:GPS) today reported that net sales for the third quarter of fiscal year 2011, which ended October 29, 2011, decreased 2 percent to $3.59 billion compared with $3.65 billion for the third quarter last year. Net income was $193 million compared with $303 million for the third quarter last year. Third quarter diluted earnings per share was $0.38, down 21 percent from last year.
During the third quarter, the company continued to invest in long-term growth opportunities, while also maintaining strong expense discipline and returning cash to shareholders. Many of the key priorities detailed at the company's annual investor conference last month will be reinforced during today's earnings call.
"Across our brands, we're intensely focused on improving our current sales trend, including making necessary product and marketing adjustments, with a view toward building momentum as we head into 2012," said Glenn Murphy, chairman and chief executive officer of Gap Inc. "We're ready to compete aggressively this holiday."
The company's third quarter comparable sales, which include the associated comparable online sales, were down 5 percent compared with a 1 percent increase in the third quarter last year. For the third quarter of fiscal year 2011, online sales positively impacted comparable sales for Gap Inc. by 2 percentage points.
Comparable sales for the third quarter of fiscal year 2011, including the associated comparable online sales, were as follows:
The following tables represent the company's third quarter net sales:
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(1) U.S. includes the United States and Puerto Rico.
(2) In July 2010, the company began selling products online to customers in select countries outside the U.S. using a U.S.-based third party that provides logistics and fulfillment services. In August 2010, the company began selling products online to customers in select countries outside the U.S. utilizing its own logistics and fulfillment capabilities.
(3) Other includes our wholesale business, franchise business, Piperlime, and Athleta.
Earnings per Share
The company reaffirmed its guidance for fiscal year 2011 diluted earnings per share of $1.40 to $1.50.
Depreciation and Amortization
The company now expects depreciation and amortization expense, net of credits associated with the amortization of lease incentives, for fiscal year 2011 to be about $510 million, down from the previous guidance of about $550 million.
Operating Expenses
The company maintained focus on expense control in the third quarter of fiscal year 2011. Third quarter operating expenses were $968 million. Marketing expenses for the quarter were $149 million, up slightly compared with last year. As a percentage of net sales, operating expenses leveraged 40 basis points.
Effective Tax Rate
The effective tax rate was 40.6 percent for the third quarter of fiscal year 2011. The company now expects that the effective tax rate will be about 40 percent for fiscal year 2011, up from the previous guidance of about 39 percent, driven primarily by greater than expected start-up costs associated with its China business.
Inventory
The company reported that inventory dollars per store were up 6 percent at the end of the third quarter of fiscal year 2011 compared with the third quarter of last year.
The company expects inventory dollars per store at the end of the fourth quarter to be up in the mid-to-high single digits compared with the fourth quarter of last year.
Please see the Financials section under the Investors tab on www.gapinc.com for the company's explanation of numerical range guidance.
Cash and Cash Equivalents and Short-term Investments
The company ended the third quarter of fiscal year 2011 with $1.4 billion in cash and cash equivalents and short-term investments. Third quarter year to date, free cash flow, defined as net cash provided by operating activities less purchases of property and equipment, was an inflow of $222 million. Please see the reconciliation of free cash flow, a non-GAAP financial measure, from the GAAP financial measure in the tables at the end of this press release.
Share Repurchases
Third quarter year to date, the company repurchased about 107 million shares for $2.0 billion. As part of Gap Inc.'s commitment to returning excess cash to shareholders, the company today announced that its Board of Directors has authorized a new $500 million share repurchase program.
Dividends
The company paid a dividend of $0.1125 per share during the third quarter of fiscal year 2011, which was an increase of 13 percent compared with last year.
Capital Expenditures
Third quarter year to date, capital expenditures were $416 million, focused on Old Navy downsizes, international stores, and global online expansion. The company continues to expect fiscal year 2011 capital spending of about $575 million.
Real Estate
Net square footage of company-operated stores decreased 2 percent compared with last year. The company continues to expect full year net square footage to decrease about 2 percent for fiscal year 2011.
As reiterated during last month's annual investor conference, the company intends to reduce its North America square footage through strategic closures and consolidations at Gap brand and downsizes at Old Navy. Doing so should improve the customer experience and should support improved productivity per square foot. The company's strategy is expected to result in a total of about 950 Gap stores in North America by the end of fiscal year 2013, comprised of about 700 specialty and about 250 outlet stores. Third quarter year to date in North America, the company closed 20 stores, on a net basis.
The company continues to expect fiscal year 2011 company-operated store openings to be about 125. However, the company now expects about 150 company-operated store closures compared with previous guidance of about 125, primarily due to timing of Gap specialty store closures and consolidations.
Outside of North America, the company's goal is to enable long-term growth through both company-operated and franchise stores. Third quarter year to date, on a net basis, the company added 17 international company-operated stores and 33 franchise stores. The company expects about 60 franchise store openings in fiscal year 2011.
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Katrina O'Connell, vice president of Corporate Finance and Investor Relations at Gap Inc., will host a summary of the company's third quarter fiscal year 2011 results during a live conference call and real-time webcast at approximately 5 p.m. Eastern Time today. Ms. O'Connell will be joined by Glenn Murphy, Gap Inc. chairman and chief executive officer, and Sabrina Simmons, Gap Inc. chief financial officer.
To access the conference call, please dial (800) 374-1731, or (706) 679-5876 for international callers. The webcast can be accessed from the Financial News and Events page of the Investors section at www.gapinc.com. A replay of the call will be available on www.gapinc.com.
The company will report November sales on December 1, 2011.
This press release and related conference call and webcast contain forward-looking statements within the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. All statements other than those that are purely historical are forward-looking statements. Words such as "expect," "anticipate," "believe," "estimate," "intend," "plan," "project," and similar expressions also identify forward-looking statements. Forward-looking statements include statements regarding the following:
Because these forward-looking statements involve risks and uncertainties, there are important factors that could cause the company's actual results to differ materially from those in the forward-looking statements. These factors include, without limitation, the following:
Additional information regarding factors that could cause results to differ can be found in the company's Annual Report on Form 10-K for the fiscal year ended January 29, 2011, as well as the company's subsequent Quarterly Reports on Form 10-Q.
Forward-looking statements are based on information as of November 17, 2011. The company assumes no obligation to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized.
Gap Inc. is a leading global specialty retailer offering clothing, accessories, and personal care products for men, women, children, and babies under the Gap, Banana Republic, Old Navy, Piperlime, and Athleta brands. Fiscal year 2010 net sales were $14.7 billion. Gap Inc. products are available for purchase in over 90 countries worldwide through about 3,100 company-operated stores, about 200 franchise stores, and e-commerce sites. For more information, please visit www.gapinc.com.
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Gap Inc. is a leading global retailer offering clothing, accessories, and personal care products for men, women, and children under the Gap, Banana Republic, Old Navy, Athleta, and Intermix brands.