Blog: Leonie BarrieGap on track?

Leonie Barrie | 24 August 2007

Gap yesterday showed first signs of the recovery that has dogged it for the past couple of years by posting a 19% rise in second quarter profit to $152m. It makes an auspicious start for new chief executive Glen Murphy in his first earnings report, but most of the gains have been achieved as part of an ongoing cost cutting and restructuring programme rather than through an uplift in sales. In fact, total sales slipped 1% and more worryingly, comparable store sales – a key measure of retailer’s health – were down 5% compared with the same period last year.

Gap believes recent measures, including axing around 2,200 positions during the first half of 2007, will generate annual savings of around $100m. It even went so far as to lift its full-year profit outlook. But there are only so many costs that can be cut to boost profits. Other retailers have already expressed worries that housing and credit issues, higher fuel and food costs could hurt consumer spending. And unless Gap can reverse the slumping sales that are at the core of its problems, the company could still face challenging times ahead.

Cost cutting helps Gap to 19% jump in Q2 profit


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