Financial Desk: Sales Down, But Earnings Up 40% for Gap, as Retailer Cuts Marketing Budget
We hate to see this, because it means less creative, but cutting its marketing expenses was one tactic that helped Gap bolster its bottom line, even as sales continued their slide into the red.
In addition to other cost cutting measures that included reduced remodeling efforts for Old Navy stores, and a $15 million pre-tax earnings benefit, Sabrina Simmons, Gap Inc.’s EVP/CFO, said in an earnings call late Thursday that “lower marketing expenses” also helped lift earnings 40% to $249 million, for the quarter ended May 3.
So where was the blood spilled in the marketing department?
Well, ad spend dropped almost 18% from the year-earlier period, closing at $93 million for the quarter. The $21 million reduction was due in large part to the absence of TV spots for the Gap brand, Simmons said. However, she added that shareholders and analysts shouldn’t expect such cuts to continue.
“Unlike this first quarter, we expect our marketing expenses in the second quarter to be fairly similar to last year’s level of $88 million,” she said.
Yay! Maybe we'll have some more fun creative to look forward to this summer, when we're all staying indoors and running the air conditioners to escape from global warming. That is, though of us who have TV. (We're luddites, y'all, except when we visit our wife to watch rounds and rounds of Lifetime Movies.)
While earnings might have been a bright spot, and showed the beleaguered firm capable of trimming costs for the benefit of its investors, sales trends showed signs of trouble amid an economic slowdown that has the whole retail industry reeling. Comp store sales at Gap North America dropped 7% for the quarter to $976 million, and Old Navy posted an 18% decrease, dropping to $1.2 billion in sales.
If you don't have your financial party hat on, folks, that means, pretty much, "things sucked over the past three months." Which is too bad for Old Navy, because we, (and the wife), LOVE those new ads. It's like Gossip Girl meets Fred Flare's Crafternoon Delights. Seriously, some fierce-ass dresses that might have the retailer beating Forever 21 at its own game. Seriously, if you haven't seen these ads (also screen-grabbed, above, right), they just might change the way you view Old Navy. They did for us.
Meanwhile, on the richer side of things, Banana Republic's comp store sales dropped 4% to $538 million and Glenn Murphy, chairman and CEO, said that the brand had been affected by challenging traffic trends, and an “uncharacteristically promotional” environment at the apparel chain’s direct competitors. Thus far, Banana Republic has avoided playing the promotional card to drive sales.
“We’re watching the competitive landscape very closely,” added Murphy. “And [we] are prepared to make the necessary adjustments to drive traffic if this promotional level that we are seeing currently was to continue.”
Yay SALES that are sure to come. Because, honey, that's a brand for the aspirational rich, not the real rich, and we ain't getting any more money any time soon. That is, until Obama is in the White House, but we don't want to get political. We just want good health care, education, and leadership that will get us out of this war, y'know, in less than 100 years. But we digress.
Net sales for the company dropped about 5% to $3.38 billion for the first quarter. The company has maintained its guidance for fiscal 2008 earnings per share to fall in the range of $1.20 to $1.27.
