Gap tops expectations with its fourth-quarter earnings

Posted Feb 27th 2009 9:09AM by Mark Fightmaster
Filed under: Earnings Reports, Gap Inc (GPS)

I guess there just isn't much of a market for khakis and blue oxford shirts in the middle of a recession. Clothing retailer Gap (NYSE: GPS) revealed that its fourth-quarter profit fell 12% thanks to holiday weakness at Gap and Old Navy stores. Net income dropped to 34 cents per share, a penny short of year-earlier results. Despite a drop from last year's fourth-quarter profit, GPS managed to top the consensus estimate of 32 cents per share.

Turning to revenue, the trendy retailer posted sales of $4.1 billion. Again, this number was worse than a year ago, but better than what experts predicted. GPS even managed to hold on to its profit margin, which came in at 34% compared to 34.7% a year ago.

Same-store sales fell across the board. GPS's flagship Gap stores saw North American same-store sales slip 13%, Old Navy sales fell 17%, and Banana Republic sales dropped 15%.

GPS has undergone a massive change, replacing a number of its top executives at all of its brands. In addition, GPS will close 100 stores and open 50 others, half of which are outside the United States; the rest are outlets. Furthermore, the firm announced on Monday that it will close all of its Forth & Towne stores (which have been open for 18 months) in order to focus on its core brands.

Are these changes enough to turn around the firm's performance? Perhaps, but the stock's technical performance certainly doesn't suggest a quick turnaround. On a daily basis, GPS has battled overhead resistance from the $12 level and its descending 10- and 20-day moving averages. The weekly picture isn't much better for GPS, as the stock is positioned directly south of both the $12 level and its 10- and 20-week moving averages. It is tough to recommend buying this struggling retailer, especially in the current economic environment.

Tags: gap, gps, inthenews