Gap Stores’ Dividend Hike Can’t Hide Lower Profit

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Gap Stores Inc. (NYSE: GPS) reported fourth-quarter and full-year 2013 results after markets closed Thursday. For the quarter, the clothing retailer posted diluted earnings per share (EPS) of $0.68 on revenues of $4.58 billion. In the same period a year ago, the company reported EPS of $0.73 on revenues of $4.73 billion. Third-quarter results compare to the Thomson Reuters consensus estimate for EPS of $0.66 on $4.6 billion in revenues.

For the full year, the retailer posted EPS of $2.74 on revenues of $16.15 compared with year-ago EPS of $2.33 on revenues of $15.65 billion. Consensus estimates called for EPS of $2.73 on revenues of $16.18 billion.

Gap increased its dividend by 10% beginning with the payment due in April. The company will now pay an annual dividend of $0.88 per share.

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

Gap forecast fiscal year 2014 EPS at $2.90 to $2.95, including a negative impact of 5% due to currency translation. Without the currency exchange impact Gap believes its EPS growth would be in the double-digits.

Online sales rose 21% year-over-year to $2.26 billion or about 14% of total sales.

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 posted growth of just 2%. Gap stores posted an increase of 3% in global same-store sales. But U.S. sales accounted for 78% of the company’s total sales. Gap needs to lower that figure.

Shares traded down about 1.5% in the after-hours market, at $43.01 in a 52-week range of $32.35 to $46.56. The consensus target price for the shares was around $45.10 before this report.

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