On Softer Sales, Gap Expanding Athleta

Despite reporting slower sales, Gap Inc. beat Wall Street expectations with its fourth-quarter earnings, and says it is encouraged by consumer response to its multichannel offerings.

And the San Francisco-based retailer says it intends to ramp up its expansion of Athleta, its women’s fitness brand, as well accelerate expansion of both the flagship Gap and Old Navy stores in Asia.

Net income for the fiscal fourth quarter fell to $307 million, compared to net income of $351 million a year ago. And net sales slipped to $4.58 billion, compared with $4.73 billion for the year-ago period. Fourth-quarter comparable sales inched up 1%. For the full year, it says it reduced marketing spending by some $16 million.

“We are pleased to deliver another year of profitable growth for our shareholders,” says chairman and CEO Glenn Murphy, in its earnings release. “Engaging customers across our multi-channel portfolio of brands positions us well on our path to winning in the global marketplace.” 

And after opening 65 new Athleta stores this year, it says it will open about 30 more U.S. stores in the year ahead. It plans to open 34 more Gap stores in China, bringing the total to 81, and to introduce the Old Navy brand there as well, opening five stores in the coming fiscal year. It also intends to franchise the brand in the Philippines, and extend its presence in Japan.

The results pleased some observers, who say it outperformed other specialty retailers. Sterne Agee reiterated its recommendation of the company, in part because of its omnichannel efforts. 

“With ship-from-store, find-in-store and reserve-in-store now implemented, management noted that the next opportunity is order-from-store, with testing beginning in the second quarter, which could consist of a self-service kiosk in stores or a store associate-aided service,” writes Sterne Agee retail analyst Ike Boruchow. “This could be an incremental top-line driver for the business long-term. While not immune to the competitive issues in mall-based apparel,” he adds, the company continues to manage its expenses and earnings effectively.

For the fiscal year, the Gap says it increased online sales 21% to $2.26 billion.

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