Tiger Global and The Gap
Tiger Global started new positions in Restoration Hardware Holding (RH), Vipshop Holdings Ltd (VIPS), Gap Inc. (GPS), sold UTi Worldwide (UTIW), and increased its stakes in Priceline (PCLN) and TransDigm Group Incorporated (TDG).
Tiger Global Management opened a 0.98% position in apparel retail company Gap Inc. (GPS). Gap is a global retailer offering apparel, accessories, and personal care products for men, women, children, and babies under the Gap, Old Navy, Banana Republic, Piperlime, Athleta, and Intermix brands. Gap has company-operated stores in the U.S., Canada, the United Kingdom, France, Ireland, Japan, China, and Italy. It also has franchise agreements with unaffiliated franchisees to operate Gap, Banana Republic, and Old Navy stores in many other countries around the world.
Gap’s 4Q results beat analyst consensus on EPS but missed on revenue. Net income dropped 12.5% for the 13 weeks ended February 1, 2014 to $307 million, or $0.68 per share on a diluted basis. Net sales were down to $4.58 billion, compared with $4.73 billion for the 14 weeks ended February 2, 2013. The company’s fourth quarter comparable sales were up 1% compared with a 5% increase in the fourth quarter last year.
Online net sales increased 21% to $2.26 billion for fiscal year 2013, demonstrating creation of a competitive advantage through innovative omni-channel capabilities. In fiscal year 2013, the company expanded its Gap store base in mainland China, opening 34 stores, for a total of 81 stores, inclusive of Gap outlet stores. The brand expects to open about 30 additional Gap stores in China during fiscal year 2014. The company continued to grow its Franchise business during fiscal year 2013 with 72 new stores, now totaling 375 stores in over 40 global markets. In fiscal year 2014, the company expects its franchise partners to open about 75 more Gap, Banana Republic, and Old Navy stores.
Gap’s 2014 fiscal year guidance contemplates some of the expected impact from weakening foreign currencies. So, it estimates its reported fiscal year 2014 earnings per share growth rate to be negatively impacted by about five percentage points at current exchange rates. Gap expects earnings per share in the range of $2.90 to $2.95 for the current year that was below street estimates. Gap’s comparable sales for February 2014 were down 7% versus a 3% increase last year. The company noted that more than 450 stores experienced closures during February due to the harsh weather.
In November 2013, the company gave a $1 billion share repurchase authorization, of which $966 million was still available at the end of fiscal year 2013. Gap recently declared a $0.22 per share quarterly dividend, a 10% increase from prior dividend of $0.20.
Amid the political debate on minimum wages, the retailer announced last month that it will raise the hourly wages of its employees to $9 an hour this year and $10 an hour in 2015. This will ultimately benefit about 65,000 store employees. The move received praise from President Barack Obama, who has called to increase the minimum wage rate to $10.10 an hour from $7.25. Gap’s release stated “To us, this is not a political issue. Our decision to invest in frontline employees will directly support our business, and is one that we expect to deliver a return many times over.”
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