Gap Inc., owner of brands like Old Navy, Banana Republic, and its namesake label, reported better-than-expected fourth quarter results yesterday after the closing bell, even as operating income fell 37.2 per cent to $372 million.
The company’s leadership also offered an interesting perspective on consumer credit. Specifically, on yesterday’s earnings call, management noted that consumers are back to a normalized level of spending and that growth may be levelling off.
“We did get a nice increase in 2011 and we wouldn’t expect that same kind of increase in ’11, in ’12,” Sabrina L. Simmons, Gap CFO, said. “And the reason is ’11 seems to be a really unique year with balances of our customers sort of growing. I guess, that’s maybe a sign that people are getting more confident as the economy improves and stabilizes, but the loss rates have stayed pretty low. I think that’s fairly unique circumstances. So we’re not counting on the same level of growth in the program in ’12 as we got in ’11.”
Recent data out of the Federal Reserve on consumer credit has been particularly robust, and the news out of the Gap both confirms that and puts that into perspective.
Gap’s private label credit card business is one of the oldest and largest among specialty retailers — you could look to the Neiman Marcus brand as one of the other private-label credit bellwethers, which Credit Suisse estimates accounts for 50 per cent of total company-wide sales.
Simmons expectation for spending to remain relative to that 2011 pace follows similar statements by other retailers and economists: 2012 still looks remarkably cloudy. But the Gap rarely offers quantitative data on its credit operations, and the fact that the company saw a return in credit spending, on it’s own card, and does not forecast an increase in bad debt expense write offs, is welcome good news.
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