Gap raises forecast on Q2 earnings rise, Old Navy strength, to open 40 stores in India

Apparel retail giant Gap raised its full-year profit forecast late-Thursday, boosted by strong Old Navy brand sales, and said it will open 40 franchised stores in India next spring. Gap is partnering with Arvind Lifestyle Brands, the retail unit of textile manufacturer Arvind, to open in India with the first stores located in Mumbai and Delhi and starting with Gap’s summer 2015 collection for adults, kids and babies. “India is an emerging, vibrant market and an important next step in our global expansion strategy,” said Gap’s global president Steve Sunnucks late-Thursday.

Sales in Asia accounted for just 9% of Gap’s total revenue of $16.1bn in the year ended February 2014, but they are growing fast. The company said in April it expected sales in China to triple in the next three years to $1bn.

The company, which currently has 231 Gap stores in Asia, is also aiming to open 110 in mainland China, Hong Kong and Taiwan this year.

Gap also reported Q2 net profit rose 10% to $332m/75 cents per share, up from $303m/64 cents a year ago. The latest quarter included a benefit of about $0.05 per share from a gain on the sale of a building.

Excluding items, the company earned 70 cents per share, a penny above analysts’ view.

Revenue rose 3% in the quarter to $3.98bn, above analysts’ $3.96bn estimate. Comparable sales were flat versus a 5% increase a year earlier as those at Old Navy stores rose 4% while Gap brand comps fell a disappointing 5%. Banana Republic comps were flat.

Gross margin narrowed to 39.4% from 40.5% in its year-earlier period, but operating margin for Q2 improved to 14.2% from 13.5%. Meanwhile, operating expenses fell 4.2% to $1bn.

Gap raised its full-year profit forecast to $2.95-$3.00 per share for the year ending February 2015. It had previously forecast $2.90-$2.95 per share. Analysts expect earnings of $2.95 per share for the year.

Gap shares gained 1.12% in early after-hours trading after closing the day’s regular session at $43.18, up 7 cents. The shares trade in a 52-week range of $36.13 to $44.59.

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