Gap shares up as future brightens

[August 18, 2012]  NEW YORK (AP) -- Gap Inc.'s shares are up Friday, a day after the fashion retailer released second-quarter results that showed its move to jazz up its clothes is winning over shoppers and fueling a turnaround.

THE SPARK: Gap reported a 29 percent increase in second-quarter net income, helped by its move to liven up its stores with colorful jeans and tops. It's also kept a tight lid on inventory. It raised its full-year earnings guidance.

The company earned $243 million, or 49 cents per share, in the three-month period ended July 28 while revenue rose 6 percent to $3.58 billion. Analysts had expected a profit of 48 cents on revenue of $3.57 billion, according to FactSet.

Revenue at stores opened at least a year was up 4 percent for the quarter. By division, the metric rose 7 percent at Gap and Banana Republic and 3 percent at Old Navy. International same-store sales fell 5 percent in the quarter, however.

Based on strong second-quarter performance, Gap expects earnings per share for the full year to be in the range of $1.95 to $2. That compares with its upgraded guidance issued in May of $1.78 to $1.83 per share.

THE ANALYSIS: The company, based in San Francisco, has struggled for years to reclaim its fashion status. But the latest results offer more confidence that a comeback, started in the first quarter, is taking hold. The Gap has stepped up its marketing, and this spring and summer focused on key categories like jeans at Gap and suits at Banana Republic. It's also created partnerships with designers like Diane Von Furstenberg and hired talented executives.

The Gap brand already had brought back Tracy Gardner as creative adviser. She's expected to make an imprint on holiday fashions, executives have said. Gardner, a former J. Crew executive, worked at Gap and Banana Republic in the late 1990s and early 2000s.

The Banana Republic division also announced earlier this week that fashion designer Narciso Rodriguez will serve as an adviser to the brand beginning with the fall 2013 collection.

"Gap's management has certainly moved from defense to offense as it makes tactical investments in product and service," said Edward Yruma, an analyst at KeyBanc Capital Markets Inc. He noted the fact that the average price of goods sold has been rising shows "strong product acceptance" from shoppers.

SHARE ACTION: Gap shares rose more than 5 percent, or $1.80, to $36.14 in afternoon trading. The shares' price has almost doubled from the $19 they were trading at in the beginning of the year. They're also trading around 2001 levels.

[Associated Press]

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