SAN FRANCISCO - November 20, 2014 - (BUSINESS WIRE) - Gap Inc. (NYSE: GPS) today reported third quarter fiscal year 2014 net income was $351 million, or $0.80 per share on a diluted basis, representing an 11 percent increase over last year.
"As we move into the holiday season, our teams are focused on delivering unique customer experiences which will differentiate our portfolio of brands in the marketplace," said Glenn Murphy, chairman and chief executive officer, Gap Inc.
Third Quarter Comparable Sales Results
Gap Inc.’s comparable sales for the third quarter of fiscal year 2014 were down 2 percent versus a 1 percent increase last year. Comparable sales by global brand for the third quarter of fiscal year 2014 were as follows:
For the third quarter of fiscal year 2014, Gap Inc.’s net sales were $3.97 billion compared with $3.98 billion for the third quarter last year. The company noted that the translation of net sales in foreign currencies into U.S. dollars negatively impacted reported net sales by approximately $31 million in the third quarter of fiscal year 2014.
Net sales increased 1 percent on a constant currency basis for the third quarter of fiscal year 2014. In calculating net sales growth on a constant currency basis, current year foreign exchange rates are applied to both current year and prior year net sales. This is done to enhance the visibility of underlying business trends, excluding the impact of foreign currency exchange rate fluctuations.
The following table details the company’s third quarter net sales:
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Total online sales increased to $621 million for the third quarter of fiscal year 2014 compared with $589 million in the third quarter last year.
Additional Third Quarter Results and 2014 Outlook
Third quarter fiscal year 2014 diluted earnings per share were $0.80 compared with diluted earnings per share of $0.72 in the third quarter of fiscal year 2013. As previously communicated, the company’s diluted earnings per share for the third quarter of fiscal year 2014 includes a non-recurring benefit of about $0.06 from a lower effective tax rate versus the third quarter of fiscal year 2013, primarily due to the recognition of certain foreign tax credits.
The company updated its diluted earnings per share guidance for the full fiscal year 2014 to be in the range of $2.73 to $2.78, which includes the gain on the asset sale of $39 million communicated in connection with the company’s second quarter of fiscal year 2014 financial results.
During the quarter, the company continued its disciplined management of operating expenses. Third quarter operating expenses were up $29 million to $1.04 billion, compared with $1.01 billion in the third quarter of last year.
Marketing expenses for the third quarter were up $14 million to $176 million, compared with last year, driven primarily by increased spending at Gap brand.
The company’s operating margin was 13.9 percent in the third quarter versus 14.5 percent last year. The company now expects its full-year fiscal 2014 operating margin to be about 12.5 percent compared to 13.3 percent during fiscal year 2013.
The effective tax rate was 34.5 percent for the third quarter of fiscal year 2014. The company updated its expected full-year fiscal year 2014 tax rate to be about 38.0 percent, down from 38.5 percent, primarily to reflect the previously discussed third quarter tax benefit.
During the quarter, the company also maintained strong discipline over inventory management. On a year-over-year basis, inventory dollars per store were down 2 percent at the end of the third quarter of fiscal year 2014, below its prior guidance of up in the low single digits.
At the end of the fourth quarter of fiscal year 2014, the company expects year-over-year inventory dollars per store to be down slightly compared with the fourth quarter last year.
The company ended the third quarter of fiscal year 2014 with $954 million in cash and cash equivalents. Year-to-date free cash flow, defined as net cash provided by operating activities less purchases of property and equipment, was an inflow of $606 million compared with an inflow of $466 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.
During the third quarter of fiscal year 2014, the company used $433 million to repurchase 11.4 million shares, and the company ended the third quarter of fiscal year 2014 with 424 million shares outstanding.
As announced on October 16, 2014, the company approved a $500 million share repurchase authorization for the company’s common stock, of which about $450 million was still available as of the end of the third quarter of fiscal year 2014, reinforcing the company’s commitment to returning excess cash to shareholders.
The company paid a dividend of $0.22 per share during the third quarter of fiscal year 2014. In addition, on November 12, 2014, the company announced that its Board of Directors authorized a fourth quarter dividend of $0.22 per share.
Fiscal year-to-date capital expenditures were $508 million.
For fiscal year 2014, the company now expects capital spending to be approximately $700 million, down from the previous guidance of about $750 million.
The company now expects depreciation and amortization expense, net of amortization of lease incentives, to be approximately $500 million for fiscal year 2014, down from the previous guidance of about $520 million.
The company ended the third quarter of fiscal year 2014 with 3,680 store locations in 50 countries, of which 3,266 were company-operated.
During the third quarter of fiscal year 2014, the company opened 84 and closed 18 company-operated stores. Square footage of company-operated stores was up 2.2 percent compared with the third quarter of fiscal year 2013.
For the full fiscal year 2014, the company continues to expect to open about 185 company-operated stores, focused on China, Old Navy in Japan, Athleta, and global outlet stores. In addition, for the full fiscal year 2014 the company plans to close about 70 company-operated stores, which are weighted toward Gap North America and consistent with its previously stated strategy. Given its focus on growing through new channels and geographies, the company continues to expect square footage to increase about 2.5 percent in fiscal year 2014.
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 2014 results during a conference call and webcast starting at approximately 2:00 p.m. Pacific 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.
The conference call can be accessed by calling 1-855-5000-GPS or 1-855-500-0477 (participant passcode:1609362). International callers may dial 913-643-0954. The webcast can be accessed at www.gapinc.com.
The company will report November sales on December 4, 2014.
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 February 1, 2014, 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 20, 2014. 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 retailer offering clothing, accessories, and personal care products for men, women, and children under the Gap, Banana Republic, Old Navy, Piperlime, Athleta, and Intermix brands. Fiscal year 2013 net sales were $16.1 billion. Gap Inc. products are available for purchase in more than 90 countries worldwide through about 3,200 company-operated stores, over 400 franchise stores, and e-commerce sites. For more information, please visit www.gapinc.com.
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SOURCE Gap Inc.
David Davick
Gap Inc.
Investor Relations
415-427-2164
Investor_relations@gap.com
Kari Shellhorn
Gap Inc.
Media Relations Contact:
415-427-1805
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.