The Gap Inc. Earnings: Margins Shrink as Net Income Drops

S&P 500 (NYSE:SPY) component The Gap, Inc. (NYSE:GPS) reported its results for the first 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 First Quarter

Results: Net income for The Gap, Inc. fell to $233 million (40 cents/share) vs. $302 million (45 cents/share) a year earlier. A decline of 22.8% from the year earlier quarter.

Revenue: Fell 1% to $3.29 billion YoY.

Actual vs. Wall St. Expectations: GPS beat the mean analyst estimate of 39 cents/share. Estimates ranged from 38 cents per share to 40 cents per share. Analysts were expecting revenue of $3.29 billion.

Quoting Management: “While we acknowledge that costing pressure is impacting our business, we’re working hard to navigate this short-term macro challenge to our profitability in the current fiscal year,” said Glenn Murphy, chairman and chief executive officer of Gap Inc. “That said, our strategy remains the same – to deliver consistent, steady growth in North America while investing in our long-term global initiatives, especially in online and international.”

Key Stats:

A year-over-year revenue decrease last quarter snaps a streak of four consecutive quarters of revenue increases. The best quarter in that span was the first quarter of the last fiscal year, which saw revenue rise 6.5%.

Gross margin shrunk 2.5 percentage points to 39.6%. The contraction appeared to be driven by rising costs as the figure rose 3.3% from the year earlier quarter while revenue fell 1%.

The company has now beaten estimates the last two quarters. In fourth quarter of the last fiscal year, it topped expectations with net income of 60 cents versus a mean estimate of net income of 56 cents per share.

Net income has increased 4.5% year over year on average across the last five quarters. The biggest gain came in the first quarter of the last fiscal year, when income climbed 40.5% from the year earlier quarter.

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).

Stock Performance: Shares of GPS are down 13% from the previous close.

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