Gap’s Outlook Fails to Satisfy

Gap, the U.S.'s largest retailer, reported a 26% increase in third-quarter profits Wednesday, but the stock was down after the company's full-year forecast disappointed. Gap's net income increased to $238 million ($0.30/share) from $189 million ($0.23/share) last year. Revenue increased 0.8% to $3.85 billion. Analysts were expecting earnings of $0.30/share on $3.83 billion of sales. Gap was able to slash costs and manage inventory better, allowing the company to increase profits with flat sales growth and same-store sales falling 5%. Looking ahead to the holiday season, CEO Glenn Murphy offered cautious words to investors (full earnings call transcript later today): "The consumer will ultimately be the judge but we feel we're well positioned for the holiday season, though we're clearly aware this is going to be a tougher environment than we faced last year." The company raised its full-year outlook to $0.99-$1.05/share excluding certain items. Analysts were expecting $1.05. "They raised their guidance for the year, but their high end is in line with consensus, and that's disappointing because it means there is potential downside," said Needham & Co. analyst Christine Chen. Shares of Gap traded down 4.6% to $19.28 in midday trading Wednesday.

Sources: Press release, Reuters
Commentary: Gap Keeps Looking Better, Still Too Many Questions Remain • October Same-Store Sales: Comprehensive Roundup
Stocks to watch: GPS. Competitors: ANF, AEO. ETFs: RXI, PBJ
Earnings call transcript: The Gap Q2 2007 Earnings Call Transcript

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