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Without Online Sales, Gap Stores’ Earnings Would Be Invisible

Paul Ausick

Gap Stores Inc. (GPS) reported third quarter 2013 results after markets closed Thursday. For the quarter, the clothing retailer posted diluted earnings per share (EPS) of $0.72 on revenues of $3.98 billion. In the same period a year ago, the company reported EPS of $0.63 on revenues of $3.86 billion. Third-quarter results compare to the Thomson Reuters consensus estimate for EPS of $0.71 on $3.98 billion in revenues.

Same-store sales rose 1% in the quarter, compared with a rise of 6% in the same period a year ago. On a constant currency basis, net sales rose 5%.

Gap reaffirmed its full-year EPS guidance in a range of $2.57 to $2.65. Full-year operating margin is forecast at 13%, well under the 14.5% margin the company claimed in the third quarter. That indicates that fourth-quarter margins could be hit by promotions during the holiday shopping season.

Gap opened a net 71 stores in the third quarter, including 23 in Asia and 31 in North America

The company’s CEO said:

This quarter marks our seventh consecutive quarter of positive comp sales growth. We are pleased to maintain our momentum of growing sales and earnings per share this quarter.

Online sales rose 20% year-over-year in the third quarter, totaling $589 million or about 15% of total sales. Of the $130 million in year-over-year revenues, $98 million came from online sales. Think about that.

The weakness here is in the slow growth of same-store sales at the company’s bricks and mortar locations. The company’s Banana Republic stores posted a negative 1% in same-store sales and Old Navy stores were flat. Only Gap stores posted an increase and it was just 1%. Total global sales at Gap stores were up 2.6% but neither Old Navy nor Banana Republic stores could post better than flat total sales. Sales at the company’s new stores, including, Piperlime and Athleta, rose 75% on a base of less than $100 million in total sales.

Shares are trading down about 1.3% in the after-hours market at $41.32 in a 52-week range of $29.84 to $46.56. The consensus target price for the shares was around $44.90 before today’s report.