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Gap Announces Fourth Quarter Earnings, Forecasts Decline in Profit During Current Year

Feb 28, 2016 05:51 AM EST

Gap Inc., the American multinational clothing and accessories retailer has forecast on Thursday for a profit fall in the current fiscal year. The fall in profit has been assumed despite adopting strict measures for reducing spending. The adopted measures include buying back stocks and improving business in a bid to pay down debt.

The board of the retailer has approved an additional $1 billion to repurchase shares. But the buyback is believed to fall short since the board directs some of its cash towards debt payments, reports The Wall Street Journal.

Gap has spent $1.4 billion on stock buybacks and dividend payouts during the last year. It has ended the year with around $1.31 billion in long term debt, according to a report published in Nasdaq.

The American retailer has also disclosed its fourth quarter earnings (Q4: 2015) while representing a tentative feature for the current fiscal year. The San Francisco based company has posted net earning per share (EPS) of $0.57 during Q4:2015. The earning stands at $0.53 on an adjustment basis, reports CNBC.

The results have met Wall Street predictions. Zacks Investment Research has surveyed 17 analysts and average of their estimations for earnings has also been reported as $0.57. The company has reported a profit of $214 million during Q4, compared to $319 million or $0.75 earning per during the same quarter of the previous year.

The clothing retailer has posted revenue of $4.39 billion during Q4 of the previous year. Ten analysts surveyed by Zacks have forecast for $4.43 billion. However, Gap expects for a full year earnings of $2.20 to $2.25 per share during the current year.

Sales revenue has been decreased by 7% compared to a year earlier, which remains the same in case of comparable sales basis. The company has reported a 2% increase in comparable sales in the year ago period.

The stronger dollar has been estimated to reduce the sales by $100 million. Gross margin has also been narrowed to 32.8% from 35.2% a year earlier.

Prices of Gap shares have been increased by 12% since the beginning of the year, though Standard & Poor's 500 Index has fallen 4.5%. Gap shares have hit $27.60 during the after hours trading on Thursday following disclosure of the earning scenario. Still the prices are 31% lower compared to the previous year.

Gap has represented its fourth quarter earnings and forecast on its current year results. During the fourth quarter of the previous, the clothing retailer has somehow managed to touch the Wall Street prediction at least in terms of earnings. But citing a factor of share buyback, it has forecast for a weaker earning picture during the current fiscal year.

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