Earnings Preview: Gap Inc.

AP News
Posted: Nov 18, 2009 7:35 PM

Gap Inc. reports its results for the third quarter on Thursday afternoon. The following is a summary of key developments and analyst opinion related to the period.

OVERVIEW: Clothing chain Gap Inc. has seen its sales dip as the recession has forced shoppers to focus more on necessities and less on nonessentials like the company's popular trendy jeans.

But the merchant, based in San Francisco, has been in a better position than some rivals because it started slimming its inventory before the economic turmoil began as part of a turnaround effort that has otherwise stalled. The company has cut even more in recent months, trimming the size and number of its stores.

But the bad economy has been good for the chain's lower-price Old Navy brand, which was retooled last year to resume catering to frugal moms after an ill-fated foray into trendier fashions.

The company has been focusing on new merchandising and marketing initiatives to bring customers back. It addition to its namesake stores and the Old Navy chain, Gap owns Banana Republic, Piperlime and Athleta.

Also during the third quarter, which began Aug. 2, co-founder Donald G. Fisher died after a long battle with cancer. He was 81.

BY THE NUMBERS: Analysts polled by Thomson Reuters predict a profit of 44 cents per share on revenue of $3.58 billion for the quarter. Last year, Gap earned $246 million, or 35 cents per share, on revenue of $3.56 billion.

ANALYST TAKE: BMO Capital Markets analyst John Morris said increased markdowns at the company's Gap stores may drag down sales.

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"With a shaky deal-driven consumer already in place for (the) holiday, we are concerned that Gap's costly bet on advertising, and inventory may not be paying off fast enough," Morris told investors in a research note downgrading Gap to "Market Perform" from "Outperform."

WHAT'S AHEAD: With the holiday shopping season already under way, analysts will want an update on how Gap's brands are faring.

STOCK PERFORMANCE: During the quarter, Gap shares climbed about 31 percent to end the period at $21.34. The shares closed at $22.30 on Wednesday, near the upper edge of their 52-week range of $9.41 to $23.36.