Gap raises outlook after stronger second quarter

NEW YORK (AP) — Gap Inc. raised its earnings per share outlook for the year on Thursday, after its summer lineup helped boost second-quarter results and advanced its turnaround push.

The higher guidance was short of Wall Street expectations, but the company also hiked its annual dividend by 20 cents, or 33 percent, to 80 cents per share. Its shares rose 1 percent to $42.43 in aftermarket trading. Over the past year, the stock was up 21 percent.

Gap Inc., which is based in San Francisco, owns Banana Republic, Old Navy, Piperlime, Athleta and Intermix stores, in addition to its namesake chain. The company is the nation’s largest mall-based clothing chain operator, and its results provide insight into consumer spending.

Since early last year, Gap has been invigorating sales with more brightly-colored clothing, designer collaborations and livelier stores. Last October, the company also announced a management overhaul to help it respond more quickly to shifting tastes around the world.

The change put the North American, international, online, outlet and franchise divisions under a single global executive for each of the company’s brands. The company also formed a new innovation and digital strategy team. After a four-year-hiatus, the Gap brand is launching a TV campaign this fall. And Glenn Murphy, CEO of Gap Inc. vowed that it plans to go after new customers with different advertising strategies.

Gap’s more upbeat outlook represents a bright spot in what has been an otherwise gloomy earnings season for retailers. Major retailers including Wal-Mart Stores Inc., Target Corp. and Macy’s have lowered their expectations for the rest of the year, citing the uncertain economy.

On Thursday, teen retailers Abercrombie & Fitch Co. and Aeropostale Inc. added to the concerns about shoppers when they reported weak results. Aeropostale posted a loss in its latest quarter on poor sales and issued a weak outlook. A&F reported a 33 percent drop in second-quarter profit and warned that business would get even worse in the current quarter.

When asked by an analyst during a Thursday conference call why Gap was able to have a decent performance despite many other rivals tripping up this quarter, Murphy attributed its success to a diverse portfolio of brands, from the low-price player Old Navy to its Athleta activewear brand. But he acknowledged that retailers are still operating in a “new normal” environment, four years after the official recession ended.

“In the new normal, it’s not uncommon for customers, for very little reason or any reason, to go into hibernation, whether that’s for a month or for a quarter,” he said.

But Murphy noted that somebody is always winning. “We still have to look at it and (say) ‘There is business to be had, there is traffic to be taken, there is market share to be gained and that’s the attitude we have to take,”’ he said.

As Gap reported earlier this month, sales at stores open at least a year was up 5 percent for the three months ended Aug. 3. Gains at Gap and Old Navy offset a decline at Banana Republic.

The company earned $303 million, or 64 cents per share, which was on the high-end of its latest guidance of 62 cents to 64 cents per share. Analysts on average expected 63 cents per share.

A year ago, the company earned $243 million, or 49 cents per share.

Revenue rose 8 percent to $3.87 billion, in line with Wall Street expectations.

Gap now expects to earn between $2.57 and $2.65 per share for the full year, up from the previous forecast of $2.52 to $2.60 per share.

Analysts had forecast earnings of $2.77 per share for the full year, according to FactSet.

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AP Retail Writer Anne D’Innocenzio contributed to this story in New York.

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