Retail Earnings Cheat Sheet: Gap (GPS) Takes Fashion Abroad

Lately, everyone is questioning the consumer and the consumer’s ability to spend at retail. Yet, this earnings season has proved even the smallest uptick in top-line growth is serving better results than consumer confidence. The reality of the numbers has one step up on recent turbulent sentiment surveys. Here’s a look at Gap Inc. latest earnings breakdown (GPS):

Earnings: Q2 profits of $.36 vs. $.35 consensus and a gain of $.33 in Q2 last year, an 9% rise in profits Year-over Year.

Revenue: Increased 2% Year-over-Year from $3.24 Billion last year t0 $3.32 Billion this year, versus $3.31 Billion consensus, slightly passing expectations.

Gap Inc. CEO Glenn Murphy sees potential international growth, “By the end of the month, we’re going to open up our first store in Australia…Everything is on target for China. We’re going to open up at the end of October in Shanghai and we’re going to have four stores by the end of the year in Shanghai and Beijing…And Italy, which was the other big country we announced a few months ago, we’re going to be opening up in late November in Milan with both Banana Republic and Gap stores.”

Comment: Shares of Gap Inc (GPS) are trading down 2.3% following the company’s earnings release on Thursday, August 18th, after-the-bell, trading at $17.30 per share.

In the chart above, Gap Inc. (GPS) shares are trading at 52-week lows well below the 50-day and 200-day moving averages. An upside announcement for shares came from Gap’s board authorizing a new $750 million share repurchase program, on top of the $1 billion already authorized for 2010, bringing the total to $1.75 billion. In general, share buybacks reduce the supply of shares to the public in an effort to preserve share price and potentially increase it down the road if positive earnings can be delivered consistently in the future. Meanwhile, the Old Navy brand accounted for 37% of Gap Inc. revenues in the 2nd quarter. I increasingly hear that Banana Republic has been fashionably out-of-favor and in dire need of a turnaround to kickstart better sales again. As Gap Inc. (GPS) grows its presence abroad, the question remains whether their retail brand will be embraced and accepted. We’ll be waiting to see whether Gap Inc (GPS) performs in new emerging markets, first, before thinking twice about investing in their shares with confidence.