SAN FRANCISCO - November 16, 2012 - (BUSINESS WIRE) - Gap Inc. (NYSE:GPS) today reported strong third quarter earnings, underscoring its continued progress on key business strategies.
“We're very pleased with our strong third quarter financial performance, highlighted by how well customers have responded to our product”
Net sales for the third quarter, which ended October 27, 2012, increased 8 percent to $3.86 billion compared with $3.59 billion for the third quarter last year. The company’s third quarter comparable sales increased 6 percent. Net income for the third quarter was $308 million, up 60 percent compared with the third quarter last year. Third quarter diluted earnings per share rose 66 percent to $0.63 compared with $0.38 last year.
“We're very pleased with our strong third quarter financial performance, highlighted by how well customers have responded to our product,” said Glenn Murphy, chairman and chief executive officer of Gap Inc. “We are ready to compete and win this holiday season as we drive to build upon our top line growth.”
Given its progress year-to-date, the company raised its estimate for fiscal year 2012 diluted earnings per share to be in the range of $2.20 to $2.25. It also increased its fiscal year 2012 operating margin guidance from about 11 percent to about 12 percent.
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(1) U.S. includes the United States and Puerto Rico.
(2) Online sales shipped from distribution centers located outside the U.S. were $44 million ($33 million for Canada and $11 million for Europe) and $34 million ($24 million for Canada and $10 million for Europe) for the thirteen weeks ended October 27, 2012 and October 29, 2011, respectively.
(3) Franchise sales were $90 million ($78 million for Gap and $12 million for Banana Republic) and $81 million ($71 million for Gap and $10 million for Banana Republic) for the thirteen weeks ended October 27, 2012 and October 29, 2011, respectively.
(4) Net sales outside of the U.S. and Canada (including Direct and franchise) were $564 million and $525 million for the thirteen weeks ended October 27, 2012 and October 29, 2011, respectively.
Third quarter diluted earnings per share of $0.63 increased 66 percent compared with $0.38 for the third quarter last year. This includes a benefit of about $0.02 related to tax credits.
The company increased its fiscal year 2012 diluted earnings per share guidance to be in the range of $2.20 to $2.25. This compares with diluted earnings per share of $1.56 in fiscal year 2011.
The company continues to expect depreciation and amortization expense, net of amortization of lease incentives, for fiscal year 2012 to be about $475 million.
Third quarter operating expenses were $1.1 billion, up $105 million compared with the third quarter last year, with continued investments in marketing and store payroll. Marketing expenses for the quarter were $178 million, up $29 million compared with the third quarter last year, driven primarily by investments in Gap brand marketing and customer relationship marketing.
The company is continuing to invest in its businesses, and on a year-over-year basis, expects operating expenses in the fourth quarter of fiscal year 2012 to increase by at least as much as the 11 percent increase in the third quarter. As a result, the company continues to expect operating expenses to deleverage in the fourth quarter.
The company now expects operating margin for fiscal year 2012 to be about 12 percent, up from its previous guidance of about 11 percent.
The effective tax rate was 38.3 percent for the third quarter of fiscal year 2012. The company now expects the full year effective tax rate to be about 39.0 percent for fiscal year 2012, down from previous guidance of about 39.5 percent.
On a year-over-year basis, inventory dollars per store were down 4 percent at the end of the third quarter of fiscal year 2012. The company expects inventory dollars per store to be up in the low single digits at the end of fiscal year 2012 compared with the end of the 2011 fiscal year.
As previously communicated, the company repaid the $360 million balance on its term loan during the third quarter of fiscal year 2012. The company ended the third quarter of fiscal year 2012 with $1.8 billion in cash, cash equivalents, and short-term investments. Year-to-date, free cash flow, defined as net cash provided by operating activities less purchases of property and equipment, was an inflow of $776 million compared with an inflow of $222 million last year. 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.
The company has repurchased $463 million in shares year-to-date. Third quarter share repurchases were 2.7 million shares for $96 million, and the company ended the third quarter of fiscal year 2012 with 480 million shares outstanding.
The company paid a dividend of $0.125 per share during the third quarter of fiscal year 2012, which was an increase of 11 percent compared with the third quarter last year. The company announced on Monday of this week that its Board of Directors authorized a quarterly dividend of $0.125 per share payable on or after January 30, 2013 to shareholders of record at the close of business on January 2, 2013. With this announcement, the company will pay a total of $0.50 per share in dividends for fiscal year 2012.
Year-to-date capital expenditures were $449 million. The company expects fiscal year 2012 capital spending of about $675 million.
The company ended the third quarter of fiscal year 2012 with a total of 3,339 store locations in 45 countries, 3,068 of which were company-operated.
On a year-to-date basis, the company opened 107 and closed 75 company-operated store locations. Square footage of company-operated stores was 36.9 million at the end of the third quarter, a decrease of about 2 percent from 37.6 million at the end of the third quarter of fiscal year 2011. This decrease reflects Gap Inc.’s strategy to optimize square footage in North America.
The company continues to expect net openings of about 15 company-operated stores and about 50 to 75 franchise stores during fiscal year 2012. Square footage for company-operated stores is expected to decrease by about 1 percent by the end of fiscal year 2012 compared with the end of fiscal year 2011.
Store count, openings, closings, and square footage for our stores are as follows:
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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 2012 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 November 29, 2012.
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 28, 2012, as well as the company’s subsequent filings with the Securities and Exchange Commission.
These forward-looking statements are based on information as of November 15, 2012. 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 2011 net sales were $14.5 billion. Gap Inc. products are available for purchase in about 90 countries worldwide through about 3,000 company-operated stores, about 250 franchise stores, and e-commerce sites. For more information, please visit www.gapinc.com.
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Mike Jenkins
415-427-4454
Investor Relations
investor_relations@gap.com
Stacy Rollo
415-420-8203
Media Relations
press@gap.com
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.