Reuters: Global Markets: Gap lifts profit view, Aeropostale back-to-school soft

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Gap lifts profit view, Aeropostale back-to-school soft Aug 16th 2012, 21:39 Gap logos are seen outside a Hong Kong's first Gap Store before its opening in the financial Central district November 25, 2011. Credit: Reuters/Tyrone Siu By Phil Wahba Thu Aug 16, 2012 5:39pm EDT (Reuters) - Bright colored-jeans and tight inventories helped Gap Inc (GPS.N) post higher quarterly profit on Thursday, and the clothing retailer also raised its full-year forecast. The results contrasted with those of teen apparel retailer Aeropostale Inc (ARO.N) which had to slash prices as tough competition for teens' dollars carried into the back-to-school shopping season. For almost a decade, Gap had struggled with its fashion mix, losing out to rivals such as Zara parent Inditex, which overtook Gap as the world's biggest clothing retailer by sales in 2010. But its main brands have staged a big turnaround in the last year. Banana Republic's tie-in with Mad Men was a big success and the chain this week gave popular American designer Narciso Rodriguez an advisory role. North American sales at its Gap, Banana Republic and Old Navy chains all rose during the quarter, lifting Gap's quarterly profit 28.6 percent. Gap raised its full year profit forecast by 17 cents per share and now expects to earn $1.95 to $2, and also said it now expects its operating margin to be 11 percent, rather than its previously forecast 10 percent. Gap also managed its inventory carefully so as to avoid fire sales in a tough economy in the event of a pullback by shoppers, helping lift its gross margins 3 points, to 36.9 percent of sales. Gap expects inventory levels to be down this quarter. Gap shares were up 1.7 percent in afterhours trading, while Aeropostale was down 7.8 percent. Aeropostale Inc ARO. struggled to compete with rival American Eagle Outfitters Inc (AEO.N) and had to slash prices "more aggressively than initially expected," its chief executive said in a statement. Teen employment is at its lowest level since 1964, making more teenagers reliant on their parents to fund their back-to-school shopping and making offering compelling fashions all the more crucial. Aeropostale also gave a third-quarter forecast of 25 cents to 30 cents per share that was below Wall Street expectations of 38 cents, according to Thomson Reuters I/B/E/S. The company said it experienced a "soft start" to the back-to-school season, which is crucial to the teen retailers. "Competitive pricing pressures on our core basic business (have) accelerated into the early back-to-school season, and we believe that both our topline and margins will be under pressure for the remainder of the third quarter," Aeropostale Chief Executive Thomas Johnson said. Abercrombie & Fitch Co (ANF.N) expects its same-store sales to decline in the second half of the year and has admitted to not offering customers enough new fashion. American Eagle saw its same-store sales rise 9 percent last quarter, thanks to more compelling fashions, according to analysts. For the second quarter ended July 28, Gap Inc earned $243 million, or 49 cents a share, compared with $189 million, or 35 cents last year. Gap Inc sales rose 6 percent to $3.58 billion, while comparable store sales were up 4 percent during the quarter. Aeropostale reported net income of $71,000, or nil per share, compared to $2.9 million, or 4 cents a year earlier. Aeropostale shares were down 7.9 percent in afterhours trading. (Reporting by Phil Wahba in New York; Editing by M.D. Golan) Link this Share this Digg this Email Reprints

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