US: Gap sales fall in tough 2005
Despite reporting a fall in fourth quarter earnings, Gap has seen a small increase in earnings per share for the full year. Sales in the full year and fourth quarter fell, however.
The retailer said net earnings for the fourth quarter reached US$337 million, or $0.39 per share on a diluted basis, compared to $378m, or $0.40 per share for the same period last year. Fiscal year 2005 earnings per share were $1.24, up from $1.21 for fiscal year 2004.
"Despite challenges in 2005, we delivered on our growth initiatives, and our strong cash flow enabled us to significantly increase our dividend and repurchase shares," said Gap Inc. CEO and President Paul Pressler. "In 2006, we are aggressively taking actions to improve product and win back our customers...we are 100% focused on improving the products of each brand."
He added: "In the past year, we took new approaches to gain back market share but we did not deliver. We know we can do better. We have a solid foundation for success."
Net sales in the final quarter fell 2% to $4.8 billion. Comparable store sales decreased 6%, compared with a decrease of 3% for the same period last year.
For the full year, net sales of $16.0 billion was a decrease of 2% compared to last year. The company's comparable store sales for the year decreased 5 percent, compared with flat comparable store sales last year.
The company's fiscal year 2005 earnings per share of $1.24 included a $0.03 net benefit from one off factors, including a $0.04 benefit from the company's decision to occupy its leased office space in the Mission Bay area of San Francisco. These benefits were partially offset by $0.03 of amortization related to lease rights for stores in France.
"Due to the uncertainty regarding the timing of its turnaround, the fact that month-to-date traffic is down 13% in February, and the company's expectation that total comparable store sales will remain negative in the first half of fiscal year 2006 and turn modestly positive in the second half of fiscal year 2006, the company is guiding to a modest fiscal year 2006 earnings per share of $1.23 to $1.27," the company said.
However, in a separate statement Gap said it plans to significantly increase its cash dividend per share by 78% in 2006 and the company's board of directors has authorised an additional US$500m for its share repurchase programme.
"This announcement reflects our confidence in the company's ability to continue generating strong cash flow," said Gap Inc. President and CEO Paul Pressler. "Looking ahead, we remain committed to delivering shareholder value through earnings growth and cash distributions."
The company intends to increase the annual dividend per share from $0.18 in fiscal year 2005 to $0.32 for its fiscal year 2006. The dividend is expected to be paid quarterly in April, July, October, and January.
The company will open 175 stores in 2006, and shut 135, according to executive vice president and chief financial officer, Byron Pollitt. The openings will be weighted toward the Old Navy concept; the closures toward the Gap brand.
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