Gap Inc. Reports Fourth Quarter Earnings Per Share Increase of 66 Percent

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Gap Inc. Reports Fourth Quarter Earnings Per Share Increase of 66 Percent

Full Year Net Sales Grow by Over $1 Billion to $15.7 Billion

SAN FRANCISCO--(BUSINESS WIRE)-- Gap Inc. (NYS: GPS) today reported fourth quarter and full year results for fiscal year 2012 and provided guidance for fiscal year 2013. Improved product performance and continued global expansion helped drive an 8 percent increase in net sales for the full year. The company reported earnings per share for the 53 weeks ended February 2, 2013 increased 49 percent to $2.33 on a diluted basis, compared with $1.56 for the 52 weeks ended January 28, 2012.


"Our results in 2012 were stellar in many ways, and I'm very pleased with how well our product resonated with customers," said Glenn Murphy, chairman and chief executive officer of Gap Inc. "We enter 2013 focused on leveraging our global brands to gain more market share and continuing to increase shareholder value."

Fiscal Year 2012 Financial and Business Highlights

  • In North America, Gap, Banana Republic, and Old Navy each delivered positive comparable sales for four consecutive quarters.
  • Fiscal year 2012 gross margin increased 320 basis points to 39.4 percent; operating margin increased 250 basis points to 12.4 percent.
  • Fiscal year 2012 diluted earnings per share increased 49 percent to $2.33 compared with $1.56 last year.
  • The Gap Inc. Direct division delivered $1.9 billion in net sales - representing a 24 percent increase over fiscal year 2011.
  • Franchise net sales grew by 17% and franchisees entered nine new countries.
  • The company returned about $1.3 billion in cash to shareholders through share repurchases and dividends for the full year.
  • On December 31, 2012, the company acquired Intermix, a multi-brand specialty retailer of luxury and contemporary women's apparel and accessories, based in New York.

In addition, the company successfully executed on key real estate and expansion initiatives in fiscal year 2012:

  • In North America, the company made significant progress toward optimizing its Gap and Old Navy store fleet through store closures, consolidations, and downsizing.
  • The company opened 25 Athleta stores, for a total of 35, and expects to open about 30 stores in fiscal year 2013.
  • Old Navy opened its first store in Japan and plans to open as many as 20 more stores in fiscal year 2013.
  • The company opened net 33 Gap and outlet stores in China and expects to open an additional 35 stores in fiscal year 2013.
  • Gap Inc.'s franchise partners opened net 85 Gap and Banana Republic stores, reaching a total of 312 franchise stores. The company expects its franchise partners will open as many as 75 additional franchise stores in fiscal year 2013.

The company noted that fiscal year 2012 had 53 weeks versus 52 weeks in fiscal year 2011. As a result, the company's results for the fourth quarter of fiscal year 2012 and for the fiscal year 2012 include the additional week, while comparable sales calculations exclude the 53rd week.

Fourth Quarter Results

Net sales for the 14 weeks ended February 2, 2013 were $4.73 billion, compared with $4.28 billion for the 13 weeks ended January 28, 2012. The company's fourth quarter comparable sales were up 5 percent compared with a 4 percent decrease in the fourth quarter last year.

Net income for the 14 weeks ended February 2, 2013 was $351 million, or $0.73 per share on a diluted basis. This compares with net income of $218 million, or $0.44 per share on a diluted basis, for the 13 weeks ended January 28, 2012.

Fourth Quarter Comparable Sales Results

Comparable sales for the fourth quarter of fiscal year 2012 were as follows:

  • Gap North America: positive 4 percent versus negative 3 percent last year
  • Banana Republic North America: positive 3 percent versus flat last year
  • Old Navy North America: positive 8 percent versus negative 6 percent last year
  • International: negative 2 percent versus negative 8 percent last year

Fiscal Year 2012 Results

Net sales for the 53 weeks ended February 2, 2013, were $15.7 billion compared with net sales of $14.5 billion for the 52 weeks ended January 28, 2012. The company's fiscal year 2012 comparable sales were up 5 percent compared with a 4 percent decrease last year.

For the 53 weeks ended February 2, 2013, the company reported net income of $1.1 billion, or $2.33 per share on a diluted basis, compared with net income of $833 million, or $1.56 per share on a diluted basis, for the 52 weeks ended January 28, 2012.

Fiscal Year 2012 Comparable Sales Results

Comparable sales for fiscal year 2012 were as follows:

  • Gap North America: positive 6 percent versus negative 4 percent last year
  • Banana Republic North America: positive 5 percent versus negative 1 percent last year
  • Old Navy North America: positive 6 percent versus negative 3 percent last year
  • International: negative 3 percent versus negative 7 percent last year

Net Sales Results

The following tables detail the company's fourth quarter and fiscal year net sales:

       

($ in millions)
14 Weeks Ended February 2, 2013

GapOld NavyBanana

Republic

Franchise (3)Other (4)Total (5)

Percentage of
Net Sales

U.S. (1)$972$1,459$655$-$-$3,08665%
Canada10812569--3027
Europe217-1915-2515
Asia34644423-4179
Other regions - - - 45 - 451 
Total Stores reportable segment1,6431,58878783-4,10187
Direct reportable segment (2) 185 237 85 - 117 62413 
Total$1,828$1,825$872$83$117$4,725100%
 

($ in millions)
13 Weeks Ended January 28, 2012

GapOld NavyBanana

Republic

Franchise (3)Other (4)Total (5)

Percentage of
Net Sales

U.S. (1)$935$1,309$616$-$-$2,86067%
Canada9810959--2666
Europe201-1716-2346
Asia331-4123-3959
Other regions - - - 39 - 391 
Total Stores reportable segment1,5651,41873378-3,79489
Direct reportable segment (2) 139 198 63 - 89 48911 
Total$1,704$1,616$796$78$89$4,283100%
 
 

($ in millions)
53 Weeks Ended February 2, 2013

GapOld NavyBanana

Republic

Franchise (3)Other (4)Total (5)

Percentage of
Net Sales

U.S. (1)$3,323$4,945$2,171$-$-$10,43967%
Canada352410216--9786
Europe691-6663-8205
Asia1,062914886-1,3059
Other regions - - - 182 - 1821 
Total Stores reportable segment5,4285,3642,601331-13,72488
Direct reportable segment (2) 537 748 247 - 395 1,92712 
Total$5,965$6,112$2,848$331$395$15,651100%
 

($ in millions)
52 Weeks Ended January 28, 2012

GapOld NavyBanana

Republic

Franchise (3)Other (4)Total (5)

Percentage of
Net Sales

U.S. (1)$3,231$4,644$2,060$-$-$9,93568%
Canada333392193--9186
Europe702-5469-8256
Asia966-13179-1,1768
Other regions - - - 135 - 1351 
Total Stores reportable segment5,2325,0362,438283-12,98989
Direct reportable segment (2) 433 638 188 - 301 1,56011 
Total$5,665$5,674$2,626$283$301$14,549100%

_________

(1)U.S. includes the United States and Puerto Rico.
(2)Online sales shipped from distribution centers located outside the U.S. were $64 million ($41 million for Canada, $18 million for Europe, and $5 million for Japan) and $43 million ($31 million for Canada and $12 million for Europe) for the 14 weeks ended February 2, 2013 and the 13 weeks ended January 28, 2012, respectively. Online sales shipped from distribution centers located outside the U.S. were $172 million ($117 million for Canada, $50 million for Europe, and $5 million for Japan) and $127 million ($89 million for Canada and $38 million for Europe) for the 53 weeks ended February 2, 2013 and the 52 weeks ended January 28, 2012, respectively.
(3)Franchise sales were $83 million ($72 million for Gap and $11 million for Banana Republic) and $78 million ($68 million for Gap and $10 million for Banana Republic) for the 14 weeks ended February 2, 2013 and the 13 weeks ended January 28, 2012, respectively. Franchise sales were $331 million ($289 million for Gap and $42 million for Banana Republic) and $283 million ($247 million for Gap and $36 million for Banana Republic) for the 53 weeks ended February 2, 2013 and the 52 weeks ended January 28, 2012, respectively.
(4)Includes Piperlime and Athleta.
(5)Net sales outside of the U.S. and Canada (including Direct and Franchise) were $736 million and $680 million for the 14 weeks ended February 2, 2013 and the 13 weeks ended January 28, 2012, respectively. Net sales outside of the U.S. and Canada (including Direct and Franchise) were $2.4 billion and $2.2 billion for the 53 weeks ended February 2, 2013 and the 52 weeks ended January 28, 2012, respectively.

Additional Fiscal Year 2012 Results and 2013 Outlook

Earnings per Share

The company expects diluted earnings per share to be in the range of $2.52 to $2.60 for fiscal year 2013, or an 8 to 12 percent increase from the prior year.

The guidance contemplates some of the impact from the weakening Japanese Yen. The average rate in fiscal year 2012 for the Japanese Yen was about 80. Current spot rate of the Japanese Yen has weakened by about 15 percent, which means the company's Japanese Yen-based net sales and earnings translate to fewer U.S. dollars.

Further, the company noted that the 53rd week in fiscal year 2012 creates a timing shift in the calendar for fiscal year 2013. For example, the first quarter of fiscal year 2013 begins on February 3, 2013 and ends on May 4, 2013. In fiscal year 2012, the first quarter began a week earlier on January 29, 2012, and ended on April 28, 2012. Therefore, the first quarter of fiscal year 2013 excludes January 29 through February 2 and now includes April 29 through May 4, a week that was part of the second quarter last year.

Depreciation and Amortization

Fiscal year 2012 depreciation and amortization expense, net of amortization of lease incentives, was $483 million.

For fiscal year 2013, the company expects depreciation and amortization expense, net of amortization of lease incentives, to be about $475 million.

Operating Expenses

Fourth quarter operating expenses were $1.2 billion, up $141 million compared with last year. Full year operating expenses were $4.2 billion, up $393 million from the prior year.

Marketing expenses for the full year were $653 million, up $105 million compared with last year.

Operating Margin

The company's operating margin in fiscal year 2012 was 12.4 percent.

The company expects that operating margin for fiscal year 2013 will be about 13 percent.

Effective Tax Rate

The effective tax rate was 39.9 percent for the fourth quarter of fiscal year 2012. The effective tax rate for fiscal year 2012 was 39.0 percent.

For fiscal year 2013, the company expects the effective tax rate to be about 39 percent.

Inventory

On a year-over-year basis, inventory dollars per store were up 5 percent at the end of the fourth quarter of fiscal year 2012, which is in line with comparable sales.

For fiscal year 2013, the company expects inventory dollars per store at the end of the first quarter to be up in the mid-single digits on a year-over-year basis over last year's negative 7 percent.

Cash, Cash Equivalents, and Short-Term Investments

The company ended the year with $1.5 billion in cash, cash equivalents, and short-term investments. For fiscal year 2012, free cash flow, defined as net cash provided by operating activities less purchases of property and equipment, was $1.3 billion compared with $815 million in fiscal year 2011. Please see the reconciliation of free cash flow, a non-GAAP financial measure, from the GAAP financial measure in the tables at the end of this press release.

Share Repurchases

During the fourth quarter of fiscal year 2012, the company repurchased about 18 million shares for $563 million. For fiscal year 2012, the company repurchased about 34 million shares for a total of $1 billion.

As announced in January, the company completed its previous $1 billion authorization and announced a new $1 billion share repurchase authorization, underscoring its continued commitment to returning excess cash to shareholders.

Dividends

The company paid a dividend of $0.125 per share during the fourth quarter of fiscal year 2012, which was an increase of 11 percent compared with the fourth quarter last year.

In a separate press release today, the company announced that its Board of Directors approved a plan to increase the company's annual dividend per share by 20 percent to $0.60 per share for fiscal year 2013. This is the fourth consecutive year Gap Inc. has increased its dividend.

Capital Expenditures

Fiscal year 2012 capital expenditures were $659 million.

For fiscal year 2013, the company expects capital spending to be approximately $675 million in support of its outlined strategies.

Real Estate

The company ended fiscal year 2012 with 3,407 store locations in 47 countries, 3,095 of which are company-operated. Square footage of company-operated stores decreased 1 percent from the end of fiscal year 2011.

In fiscal year 2013, the company expects to open about 160 company-operated stores, focused on Athleta, Gap China, Old Navy Japan, and global outlet stores. The company expects that it will close about 80 company-operated stores. The closures are weighted towards Gap North America, consistent with the company's previously stated strategy. Given its focus on growing through new channels and geographies, the company expects square footage to increase about 1 percent in fiscal year 2013.

Store count, openings, closings, and square footage for our stores are as follows:

 
14 Weeks Ended February 2, 2013

Store Locations
Beginning of Q4

 

Store Locations
Opened

 

Store Locations
Closed

 

Store Locations
End of Q4

 

Square Feet
(millions)

Gap North America1,016154199010.2
Gap Europe1962-1981.7
Gap Asia1751931911.9
Old Navy North America1,0139121,01017.6
Old Navy Asia1--1-
Banana Republic North America589765904.9
Banana Republic Asia371<
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