May 18, 2012
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Gap raises profit expectations, shares rise

May 18, 2012

Gap Inc raised its yearly profit forecast, prompted by first-quarter earnings that topped Wall Street estimates and rising sales, sending its shares up 8 percent in extended trading.

Photo: Gap Inc

For the full year, Gap estimates earning $1.78 to $1.83 a share, above the $1.75 to $1.80 it had forecast in February.

"It's important to remain measured in our outlook given that our biggest selling seasons are still ahead of us," said Chief Financial Officer Sabrina Simmons.

The back-to-school and holiday seasons are the two biggest sales opportunities for retailers, and can make or break their yearly performance.

For the first quarter ended April 28, the owner of the Gap, Old Navy and Banana Republic chains earned $233 million, or 47 cents a share, compared with $233 million, or 40 cents a share, last year.

Analysts, on average, were expecting Gap to earn 46 cents a share, according to Thomson Reuters I/B/E/S.

After years of being accused of selling boring clothes, Gap has recently regained an edge in fashion - after a prolonged turnaround which included a change in top management.

The company's spring merchandise is selling well, and its website has been revamped with a more youthful look.

"Our product teams really stepped up in the first quarter; we've been pretty consistent since our call in February," Chief Executive Glenn Murphy said on a conference call with analysts.

"We sat down as a business and took some corrective measures in product."

Gap, the third biggest clothes retailer in the world after Zara owner by Inditex, and H&M owner by Hennes & Mauritz AB, had preannounced that sales rose 6 percent to $3.49 billion, while comparable store sales were up 4 percent.

During the quarter, sales at established North American stores rose 5 percent each for the Gap and Banana Republic brands. Sales at Old Navy stores rose 4 percent, the company said.

Gap shares rose to $28.50 after the bell. They closed down 2.9 percent at $26.31 Thursday on the New York Stock Exchange.

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