The Gap Inc (NYSE:GPS) reported earnings last night that beat analysts expectations. The retailer, which has been struggling for a couple of years and has fallen out of favor with wall street, was able to cut costs and become more efficient in the second quarter. Analysts were expecting 19 cents per share from GPS and the company earned 21 cents. 
The company also announced a $1.5 billion buyback program and raised earnings guidance for the rest of the year. Previously the company had guided the street to expect 76 to 86 cents per share for the entire year, and now they expect 83 to 88 cents. Gap eliminated 2,200 jobs in the second quarter, which amounted to a yearly savings of about $100 million before taxes. The retailer announced that it will also be reducing its office space to further cut costs.
The stock has responded well so far today, trading up 5.9% on the day. Competitors of GPS also seem to be benefiting from this upward profit guidance. Abercrombie and Fitch Company (NYSE:ANF) is trading up 2.5% on the heels of the guidance from The Gap. American Eagle Outfitters (NYSE:AEO) is trading up 5.7%, partly on the news from The Gap, but primarily because it declared a cash dividend this morning.
Even though The Gap came in above earnings expectations, the company has a long ways to go in their turnaround plan. Same store sales numbers continue to languish at many of The Gap's divisions. Old Navy, the largest division, saw its same store sales dive 9% from last year. The Gap stores saw a 6% drop in same store sales from last year. The smallest division, Banana Republic, was actually the strongest division, with same store sales gaining 4% there.
Gross profit margins rose slightly to 34.3%, up from 33.0% last year. These gains were primarily due to the stores discounted less products. The CEO said that The Gap will begin thinking more creatively in order to move the company back ahead of the curve in the retailing space.
The Gap has made some progress in the past quarter, but they have a long way to go. Cost cutting and firing employees is not a long-term solution. Eventually the company must find a way to drive consumers back to their stores. The Gap's triumphant return is a work in progress, with a very unclear future still ahead.
Earlier this week GrowYourFunds profiled another retail stock, Target Inc.
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