UPDATE 3-Gap 3rd-quarter net up; view disappoints some
(Recasts, adds analyst comments, detail, updates share price)
LOS ANGELES, Nov 21 (Reuters) - Gap Inc (GPS.N) posted a 26 percent rise in quarterly earnings on Wednesday, beating analysts' estimates by a penny, but a raised forecast for the full year failed to match some Wall Street targets and its shares fell nearly 5 percent.
Chief Executive Glenn Murphy said the retailer of casual clothing faced a "tough economic environment" for the holiday sales season, which kicks off in earnest this weekend after the U.S. Thanksgiving holiday.
Cost-cutting measures, restructuring and managed inventory helped boost profit at the apparel giant that has been battling slumping sales, but quarterly sales at established stores fell 5 percent in the third quarter.
"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.
C.L. King analyst Mark Montagna said Gap considered the holiday promotional environment in its outlook and, to date this year, has erred on the conservative side of forecasts.
"Considering their inventory management skills, they can clearly achieve this guidance," Montagna said.
The company, which operates over 3,100 stores around the globe, said third-quarter net income rose to $238 million, or 30 cents per share, from $189 million, or 23 cents per share, a year ago. Sales were flat at $3.85 billion.
Analysts, on average, were expecting earnings of 29 cents on sales of $3.83 billion, according to Reuters Estimates.
"We also feel this is going to be a tough economic environment in this holiday selling season. We feel good we've been disciplined on the inventory front," Murphy said on a conference call with analysts.
"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," he said.
Gap, which named Murphy as its new chief executive in July, has been reducing inventories, trimming costs and cutting jobs as it tries to revamp its product lines at its two main chains, Gap and Old Navy. Earlier this month, the retailer raised its third-quarter earnings outlook to a range between 28 cents to 30 cents per share.
The company, whose holiday print ads at its Gap chain feature colorful, striped scarves and sweaters reminiscent of past popular Gap fashions, pared back marketing spending this quarter, saving some $75 million, by deciding not to run television ads as it had last year.
Black said Gap's more careful spending choices are smart and contrast with past decisions to push expensive marketing campaigns, even with merchandise not up to par.
"I think they're being incredibly realistic. I think Glenn is taking a slow methodical approach to this, but timely enough," Black added. Continued...
