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Gap Reports Decline in Profits
By ANNE D'INNOCENZIO
AP Business Writer
NEW YORK (AP) -- Gap Inc. (NYSE:GPS - news), the largest U.S. apparel retailer, reported a 34 percent decline in fourth quarter profits and warned that first quarter results may fall short of expectations, citing a ``very difficult'' selling environment.
The news came after luxury retailer Tiffany & Co. reported only a slight increase in profits for the three months ended Jan. 31, matching Wall Street's reduced estimates.
Meanwhile, J.C. Penney Co. Inc. said February sales at its department stores open at least a year, known as same-store sales, fell 2.1 percent, which was in line with Wall Street estimates. Same-store sales are considered the best indicator of a retailer's strength. Total sales for the month fell 0.8 percent.
Thursday's results come amid a string of dismal quarterly reports this week from other retailers, including Federated Department Stores and Limited Inc. (NYSE:LTD - news), signaling that challenges still remain ahead at least through the second quarter of this year.
``Stores are just muddling along,'' Michael Niemera, vice president at Bank of Tokyo-Mitsubishi Ltd. said Thursday.
He predicted sales gains will be in the 2 to 3 percent gain for February. That's more consistent with what retailers saw in the June-November period, he said.
``Retail sales are not as good as January, but not as bad as December,'' Niemera said. The Bank of Tokyo-Mitsubishi's index, which tracks 80 retailers, registered a 4.8 percent sales gain in January, but rose a meager 0.7 percent in December.
``There seems to be a very slow start to spring,'' said John Morris of Gerard, Klauer Mattison.
On Wednesday, specialty clothing retailer The Limited Inc. reported an 18 percent decline in fourth-quarter net income and announced plans to sell its Lane Bryant division and restructure its men's apparel business called Structure. The results matched Wall Street's reduced estimates.
On Tuesday, Intimate Brands, of which Limited owns an 84 percent stake, said profits declined 16 percent and warned that same-store sales in February at Victoria's Secret would decline by the ``high-single digits.''
That same day, Federated Department Stores, struggling with losses at its Fingerhut electronic retailing division, reported a 26 percent drop in profits in the fourth quarter. The chain operates such department stores as Bloomingdale's and Macy's.
Morris said he is particularly disturbed by sluggish sales on the all-important Valentine's Day for both Victoria's Secret and Tiffany's.
Gap, which released its results after the close of the markets, said profits for the fourth quarter were $271.5 million, or 31 cents per share, down from $413.8 million, or 47 cents per share, a year ago. Analysts polled by First Call/Thomson Financial had expected earnings per share to be 30 cents per share.
Revenues rose 19 percent to $4.57 billion, up from $3.85 billion a year ago.
For the year, Gap saw its profits plummet 22 percent to $877.4 million, from $1.12 billion a year ago. Revenues rose 18 percent to $13.67 billion, from $11.63 billion a year ago.
Same-store sales for the quarter were down 6 percent, compared to a 5 percent increase in the year-ago period. For the year, same-store sales declined 5 percent, compared to a 7 percent increase in the year-ago period.
``We didn't execute well. But we're a company that quickly learns from mistakes, fixes them and moves forward,'' said Millard Drexler, Gap president and chief executive officer. He said the company is sharpening its fashions at Gap, Banana Republic and Old Navy, and managing costs.
It may not be fast enough. Gap said the decline in same-store sales in February was in the low double-digit range, and if the sluggish trend continues, the company may earn 10 cents to 15 cents per share in the first quarter. Analysts polled by First Call expect 20 cents per share.
What's worrisome to Joseph Teklits, an analyst at Ferris Baker Watts, is that Gap is struggling with its low-priced Old Navy, mid-priced Gap and upscale Banana Republic.
``The Gap clearly doesn't have a finger on the fashion formula,'' Teklits said. ``The company is playing catch up in all three, and it's hard to focus on all of them.''
Tiffany said earnings for the fourth quarter were $84.67 million, or 56 cents per share, up from $84.58 million, or 56 cents a share in the year-ago period. Revenue rose 2 percent to $576.39, from $563.19 million in the year-ago period.
The company said it remained comfortable with first-quarter and full-year earnings estimates, though it cited current sluggish sales in the U.S., and in some international markets. Michael J. Kowalski, president and chief executive officer of Tiffany's, said he expects earnings in the first half of the year to remain unchanged from a year ago.
Analysts surveyed by First Call expect first-quarter profits to be at 20 cents per share, and are estimating $1.40 for the full year.
``What happened to Tiffany's was no surprise,'' said Ken Gassman, an analyst at Davenport & Co. ``The stock market performance affects high-end jewelry retailers like Tiffany's because a large portion of their customers' assets is tied to stocks. And it's going to be the most important factor that will determine Tiffany's sales and profits this year.''
He added that he doesn't expect Tiffany's business to turn around until the end of the year.
For all of 2000, Tiffany's net sales rose 13 percent to $1.66 billion, compared with $1.47 billion, in the prior year. Net earnings rose 31 percent to $190.58 million, or $1.26 per share, compared with $145.68 million, or 97 cents per share in the prior year.
Shares of Tiffany's rose 14 cents to close at $31.25 on the New York Stock Exchange, where Penney's shares dropped 4.6 percent, or 74 cents, to close at $15.44.
Gap shares fell more than 4 percent to close at $26.07 on the NYSE and fell another 8.9 percent to $23.75 in after-hours trading.
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