* Q3 EPS $0.38 vs $0.36
* Q3 rev $3.59 bln vs est $3.61 bln
* Q3 comparable sales down 5 pct
* Gap North America comparable sales down 6 pct
* Keeps full-year profit outlook
By Nivedita Bhattacharjee
Nov 17 Gap Inc said it plans to
"compete aggressively" on discounts to attract shoppers in the
crucial holiday season as the no. 1 U.S. clothes retailer
continues to look for ways wrestle back market share from its
The retailer, which competes with more affordable and
fashionable foreign players like Zara owner Inditex,
Uniqlo parent Fast Retailing and Hennes & Mauritz
, is trying to keep pace with fashion trends by
revamping its stores and merchandise, but without much success
" (Unlike) 10-15 years ago, there are newer
competitors and many more players in the apparel
market...chipping away share from Gap which tries to retail
across the age & gender space," Rahul Sharma, managing director
of investment management firm Neev Capital.
The company, valued at about $10 billion, sells
its products in over 90 countries worldwide through about 3,100
company-operated stores, about 200 franchise stores, and
"Gap's overall problem is that it is too big to grow
consistently. Each time you see a burst of growth for a while on
product & marketing news, (but) then it slumps back again," said
Its namesake stores, which make up nearly a quarter of
overall sales, lost their once magnetic appeal as they strayed
from what they was best known for -- high-quality jeans and
casual clothes with an American aesthetic -- something the
company is trying to go back to.
"I'd like to think that when people go to stores in
December, they will start seeing beginning of some changes to
the business when it comes to its aesthetic, in terms of the
quality of the product, in terms of the acceptance of color,"
Chief Executive Glenn Murphy said on a conference call with
For the third quarter ended Oct 29, the company, which also
authorised a share repurchase program for $500 million, earned
$193 million, or 38 cents a share, compared with $303 million,
or 48 cents last year.
"The reason why the quarter turned out to be ok was on big
share repurchases," Sharma said.
"Clearly, the real thing to get this going needs to be
sales. Inventory is up 8 percent while sales are down 2 ...
suggests more margin pressure is on the way," he said.
On a conference call with analysts, the company said it
expects margins to stay pressured. For the quarter, gross
margins dropped 450 basis points.
Sales at the San Francisco-based retailer -- which recently
outlined plans to revamp its namesake stores -- fell 2 percent
to $3.59 billion. Sales at its namesake stores, which make up
nearly a quarter of overall sales, fell 3 percent.
Analysts, on average, were expecting the company to earn 36
cents a share, on revenue of $3.61 billion, according to Thomson
Gap, which also owns the Old Navy and Banana Republic
chains, is betting heavily on international expansion as
domestic sales wane.
The company is seeing intense rivalry at its domestic market
from rival Uniqlo, which is eyeing about 200 U.S. stores by
2020, up from three.
In the third quarter, it saw franchise sales rise 47 percent
as it opened stores in Chile, Poland, Serbia, and Vietnam.
Gap shares were more or less flat at $19.25 on Thursday
after the bell. They closed at $19.24 on Thursday on the New
York Stock Exchange.