Third-Quarter Earnings at Gap Are Not Such a Pretty Picture

Gap Inc. said Thursday that its third-quarter earnings were just what Wall Street was expecting -- lackluster.

But the San Francisco retailer offered one little surprise, saying it would export its Banana Republic brand to Japan with the opening of three stores in that country next year.

The parent of more then 3,000 Gap, Old Navy and Banana Republic stores said earnings were $265 million, or 28 cents a share, for the 13 weeks ended Oct. 30, compared with earnings of $263 million, or 28 cents, in the comparable period last year. The results matched Wall Street forecasts.

Sales in the quarter were almost $4 billion, compared with $3.9 billion a year earlier. Sales at stores open for at least one year slipped 1%, compared with a 6% rise last year.

“It was underwhelming,” said Adrienne Tennant, an analyst with Wedbush Morgan Securities.

The retailer is continuing to trim its store base. It says it now plans to close 160 stores in North America this year, most of them Gap sites. The latest total is 10 more than previously expected. It plans to open 125 new stores this year, with Old Navy accounting for the largest number of openings.

Though Gap’s stores outside the U.S. have been struggling, the retailer said the Japanese consumer’s affinity for higher-end products was a good fit with the “affordable luxury” sold in its Banana Republic stores.

After opening the first stores in Tokyo next year, the retailer plans to open more Banana Republic stores in Japan in 2006.

Gap’s stock closed Thursday at $22.54, down 46 cents, on the New York Stock Exchange. The earnings were released after the market closed, and its shares fell 4 cents in after-hours trading.

Other California retailers reporting earnings Thursday included Restoration Hardware Inc., based in Corte Madera, and San Francisco-based Williams-Sonoma Inc.

Home furnishings retailer Restoration Hardware, unprofitable for the last five years, said its third-quarter loss widened because of higher costs.

The company reported a net loss of $3.1 million, or 9 cents a share, compared with a net loss of $2.7 million, or 9 cents, in the comparable period last year. Sales in the quarter ended Oct. 30 rose 23% to $118.2 million, and same-store sales climbed 8.7%.

Restoration Hardware’s stock closed at $6.31, up 58 cents, on Nasdaq but fell 84 cents in after-hours trading when the earnings were announced.

Williams-Sonoma, which operates the Pottery Barn and Hold Everything chains, trimmed its fourth-quarter earnings forecast because of an inventory shortage that could negatively affect sales. The news sent the company’s shares sliding to $36.77, down $2.33, on the NYSE.

Williams-Sonoma said its net income rose to $28.5 million, or 24 cents a share, from $23.9 million, or 20 cents, a year earlier. That was a penny more than analysts were expecting and prompted the retailer to boost its per-share profit forecast for the year by 1 cent to $1.58 to $1.62.

Sales in the quarter ended Oct. 31 rose 14% to $722.8 million. Same-store sales rose 3.1%.

Huntington Beach-based surf wear maker Quiksilver Inc. said Wednesday that its fourth-quarter profit probably would be slightly ahead of forecasts. Quiksilver’s stock gained 24 cents to $29.86 in NYSE trading.

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Bloomberg News was used in compiling this report.