The Gap Inc. Earnings Cheat Sheet: Margins Shrink For Fifth Straight Quarter as Profit Falls

S&P 500 (NYSE:SPY) component The Gap Inc. (NYSE:GPS) reported its results for the third quarter. The Gap 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 Third Quarter

Results: Net income for the apparel store fell to $193 million (38 cents per share) vs. $303 million (48 cents per share) a year earlier. This is a decline of 36.3% from the year earlier quarter.

Revenue: Fell 1.8% to $3.59 billion from the year earlier quarter.

Actual vs. Wall St. Expectations: GPS beat the mean analyst estimate of 37 cents per share. Analysts were expecting revenue of $3.61 billion.

Quoting Management: “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.”

Key Stats:

Last quarter marked the fifth straight quarter that the company saw shrinking gross margins as gross margin fell 4.4 percentage points to 36.7% from the year earlier quarter. Over that time, margins have contracted on average 2.4 percentage points per quarter on a year-over-year basis.

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

The company has now seen net income fall in each of the last three quarters. In the second quarter, net income fell 19.2% from the year earlier, while the figure fell 22.8% in the first quarter.

Over the last five quarters, revenue has increased 0.8% on average year over year. The biggest increase came in the fourth quarter of the last fiscal year, when revenue rose 3% from the year earlier quarter.

Looking Forward: The outlook for the company’s results in the upcoming quarter is unfavorable. The average estimate for the fourth quarter is 39 cents per share, down from 42 cents ninety days ago. In the last thirty days, the average estimate for the fiscal year has moved up from $1.46 per share to $1.49.

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. Crew Group, Inc. (NYSE:JCG), Aeropostale, Inc. (NYSE:ARO), Children’s Place Retail Stores, Inc. (NASDAQ:PLCE), The Walking Co. Hldgs., Inc. (WALK), and The Wet Seal, Inc. (NASDAQ:WTSLA).

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(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)

 

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