Gap profit up 25 pct in 3Q as Old Navy recovers

AP News
Posted: Nov 20, 2009 7:03 AM

Shoppers spent more money at low-price Old Navy stores in the third quarter, helping Gap Inc.'s profit climb 25 percent compared with last year, the retailer said Thursday.

Sales in Old Navy stores open at least a year rose 10 percent after sliding for at two years. A year earlier, for example, the figure _ a key performance indicator for retailers _ slipped 18 percent.

Meanwhile, the retailer said it would continue its recent marketing and advertising blitz during the holidays, including a new TV campaign for the Gap brand, its first since 2006. The company, whose other brands include Banana Republic, Athleta and Piperlime, said it will offer deep holiday discounts to lure shoppers away from competitors.

"We know the customer is really looking for value," Chief Financial Officer Sabrina Simmons told investors during a conference call Thursday. "So we're going to play hard and you'll see us really competing over Black Friday for those dollars."

Gap had seen sales dip as the recession forced shoppers to focus more on necessities and less on nonessentials like the company's long-popular jeans.

Already slimming its inventory as part of a turnaround it initiated before the economic turmoil began, Gap responded to shoppers' cutbacks by cutting even more in recent months and trimming the size and number of its stores.

It also retooled Old Navy to better cater to frugal moms and repositioned itself with new in-store marketing and more practical merchandise _ and new advertising _ to bring customers back to the chain.

So far, it seems to be working. The company posted its first quarterly sales increase since early 2007.

"Today the customer's psyche is, 'Give me a reason. Give me a reason to drive to the mall. Give me a reason to get out of my house,'" said CEO Glenn Murphy. "We have to find that reason."

The success of Old Navy helped Gap earn $307 million, or 44 cents per share, during the three-month period that ended Oct. 31. That compares with a profit of $246 million, or 35 cents per share, a year earlier.

The clothing chain's overall sales climbed 0.8 percent to $3.59 billion.

Analysts surveyed by Thomson Reuters expected Gap to earn 43 cents per share on sales of $3.59 billion.

Gap said Thursday that its board has authorized it to buy back $500 million in shares and that designer Stella McCartney will create a second line of children's and baby clothing for GapKids and babyGap stores. The line is to launch in March.

Gap is based in San Francisco and operates more than 3,100 stores around the globe.

Its shares fell 44 cents, or 2 percent, to $21.86 in trading Thursday.