The Gap Inc. (San Francisco) reported a sharp uptick in earnings for its fourth quarter 2002 versus a year ago.
The retailer reported that it earned $248.7 million in the three months ended Feb. 1, 2003. A year ago, a time when Gap was mired in a prolonged sales slump, it lost $34.2 million in the quarter.
Fourth-quarter 2002 sales jumped 14 percent and same-store sales rose 8 percent. For the full year, Gap's sales rose 5 percent and earnings jumped to $477.5 million. A year ago, Gap lost $7.8 million.
The gains reflected a back-to-basics approach Gap adopted mid last year to lure back consumers alienated by a clothing selection that had emphasized more eclectic fashions. The strategy helped Gap end 29 consecutive months of sliding sales shortly after a new ceo, Paul Pressler, replaced longtime leader Millard “Mickey” Drexler in September 2002.
Nonetheless, the company insisted that the news wasn't all good. The sales rise was still “somewhat short” of management's projections, according to cfo Byron Pollitt, because sagging consumer confidence and poor weather forced Gap to lower prices more than it expected, causing profit margins to sag badly. As a result, Gap said it will close some stores this year, reversing a decade of expansion followed by a couple of years of holding onto existing locations.
The retailer said it will begin in 2003 to close more stores than it opens. The leases for 400 to 500 of its 3117 Gap, Old Navy and Banana Republic stores are up for renewal this year, giving the company a chance to abandon poor locations.
Management didn't disclose how many stores will close. During the year, though Gap said it plans to trim 2 percent from the 37.3 million square feet of stores that it operated as of Feb. 1, 2003. This would translate into a net loss of about 750,000 square feet, or 62 stores based on the average 12,000-square-foot size of Gap's stores as of Feb. 1. Since Gap plans to open 30 to 40 new stores this year while it shuts down others, speculation is that the company may have to close even more than the estimated 62 locations to hit its targets.