The Gap, Inc. Earnings Cheat Sheet: Increasing Costs Tighten Margins as Net Income Falls

S&P 500 (NYSE:SPY) component The Gap, Inc. (NYSE:GPS) reported its results for the second quarter. The Gap Inc., is an international specialty retailer that sells casual apparel, accessories and personal care products for men, women, and children.

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The Gap Earnings Cheat Sheet for the Second Quarter

Results: Net income for the apparel store fell to $189 million (35 cents per share) vs. $234 million (36 cents per share) a year earlier. This is a decline of 19.2% from the year earlier quarter.

Revenue: Rose 2.1% to $3.39 billion from the year earlier quarter.

Actual vs. Wall St. Expectations: GPS beat the mean analyst estimate of 34 cents per share. Analysts were expecting revenue of $3.35 billion.

Quoting Management: “Despite a difficult quarter, we still delivered a net sales improvement and I continue to believe we have far greater opportunities than challenges ahead of us,” said Glenn Murphy, chairman and chief executive officer of Gap Inc. “Every brand, division, and geography is focused on what matters most – delivering consistent, great product and more effective marketing in order to drive higher levels of performance.”

Key Stats:

Gross margin shrank 2.7 percentage points to 36.9%. The contraction appeared to be driven by increased costs, which rose 6.6% from the year earlier quarter while revenue rose 2.1%.

The company has now seen net income fall in each of the last two quarters. In the first quarter, net income fell 22.8% from the year earlier quarter.

The company has now topped analyst estimates for the last three quarters. It beat the mark by one cent in the first quarter and by 3 cents in the fourth quarter of the last fiscal year.

Revenue rose last quarter after seeing a drop the quarter before. Revenue fell 1% to $3.29 billion in the first quarter from the year earlier.

Competitors to Watch: Urban Outfitters, Inc. (NASDAQ:URBN), Abercrombie & Fitch Co. (NYSE:ANF), The Gymboree Corporation (GYMB), The Buckle, Inc. (NYSE:BKE), American Eagle Outfitters (NYSE:AEO), J.C. Penney (NYSE:JCP), Nordstrom (NYSE:JWN), Ralph Lauren (NYSE:RL),¬†Aeropostale, Inc. (NYSE:ARO), Children’s Place Retail Stores, Inc. (NASDAQ:PLCE) and The Wet Seal, Inc. (NASDAQ:WTSLA).

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(Source: Xignite Financials)