How Did Gap Pull This Rabbit Out of Its Hat?

Gap (NYSE:GPS) said first-quarter profits was unchanged from a year ago as increased costs and a fall in international sales offset sales gains at its Old Navy, Gap, and Banana Republic brands. While net sales increased 6 percent to $3.5 billion, operating expenses in the quarter were up at $980 million. That included a $20 million hike in marketing expenses, driven primarily by increased investments in customer relationship as well as brand marketing.

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But the clothing outlet company beat analyst forecasts and raised its guidance for the full year.

Gap said its net income was $233 million, or 47 cents per share, a penny higher than expected. Earnings per share rose from 40 cents in the same quarter last year. Revenue rose 6 percent to $3.49 billion, beating average estimates of $3.46 billion. Revenue from stores open at least a year rose 4 percent.

“During the quarter, we improved sales, grew earnings per share, and continued investing in the business to drive performance,” chief executive Glenn Murphy said in a statement. “We’re pleased with the progress we’re making against our 2012 priorities in both our domestic business and global growth initiatives.”

The company raised its estimate for earnings per share for the fiscal year to be in the range of $1.78 to $1.83, a 14 percent to 17 percent increase over fiscal year 2011 earnings per share of $1.56.

Gap had 10 fewer store locations at the end of the quarter after opening 32 new locations and closing 42 others. It says the strategy is to optimize square footage in North America while entering new markets at the same time. The company continued to expand its base in China, opening 7 new stores in the country during the first quarter.

Gap is the third biggest clothes retailer in the world after Zara owner Inditex and H&M owner Hennes & Mauritz.

Gap stock was up 1.10 percent, or 29 cents, to be at $26.60 in after-hours trading.

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