Gap on Recovery Path - Analyst Blog
June 14 2012 - 4:15AM
Zacks
Gap Inc. (GAP)
witnessed considerable recovery in its comparable sales and total
sales performance driven by its relentless endeavors to keep itself
on the growth trajectory. The company’s efforts have paid off well
in an economy, which is looking for ways to shield itself from a
financial turmoil that seems to have no end.
During the period from February to
May, the company registered comparable sales growth in each month
except April. During that period, comps growth touched a low of
negative 2% and hit a high of 8%, thereby recording average growth
of approximately 3%. In the first four months of fiscal 2012, comps
increased 4% in February, 8% in March and 2% in May while it
declined 2% in April.
Monthly sales data for Gap also
portrays a decent performance. Within February to May 2012, the
company registered a minimum year-over-year flat sales growth and a
maximum growth of 10%, reflecting an average growth of
approximately 5% for the period. The company registered sales
growth of 6% in February, 10% in March, flat in April and 4% in
May.
Fiscal 2011 Sales: A
Recap
In fiscal 2011, Gap reported a
decline in comparable sales every month, except April and June.
Lackluster sales in the North American region have continuously
dragged down Gap’s comparable store sales throughout fiscal 2011.
During the fiscal, the company reported a decline of 4% in
comparable sales compared with an increase of 2% during the same
period in fiscal 2010. Accordingly, Gap’s net sales inched down 1%
to $14.55 billion from the prior-year sales of $14.66 billion.
Initiatives Taken to
Rebound Top Line
In an effort to improve customer
experience and enhance productivity per square footage, the company
plans to strategically close and consolidate square footage at Gap
and Old Navy brands. Gap intends to strategically reduce its Gap
North America store counts to 950 by the end of fiscal 2013,
including 700 specialty stores and approximately 250 outlets.
Contrary to this, the company is
planning aggressively to expand its international and franchise
business. Moreover, the company intends to triple the Gap store
count in China from 15 to approximately 45 during current
fiscal.
In a drive to boost its
international operations, Gap also consolidated its foreign
business under one division in London. Lackluster sales in North
America compelled the company to explore the overseas market. In
order to counter the domestic market saturation, Gap is aiming to
generate 30% of total sales from overseas operations and online
business by 2013. To achieve this, Gap has opened stores in China,
Italy and Australia, and has launched the e-commerce business in
more than 90 markets. These moves are expected to further
strengthen its top and bottom lines, moving forward.
Results so
far
Despite a consistent weak
performance in all four quarters of fiscal 2011, the company
reported a strong first-quarter 2012 result with net sales
increasing 5.8%. The robust performance was primarily driven by a
4% growth in comparable store sales. As a result of the increased
top line, the company’s earnings climbed 17.5% year over year to 40
cents per share.
Conclusion
We believe that the company’s
long-term strategic moves along with disciplined cost management
measures will not only provide financial flexibility, but will also
help to drive value proposition. Moreover, Gap’s globally
recognized brands complement one another, enabling it to leverage
its position in the sector.
Gap which competes with
American Eagle Outfitters Inc. (AEO) and
The TJX Companies Inc. (TJX) currently holds a
Zacks #2 Rank, which translates into a short-term ‘Buy’ rating. Our
long-term recommendation on the stock remains ‘Neutral’.
AMER EAGLE OUTF (AEO): Free Stock Analysis Report
(GAP): ETF Research Reports
TJX COS INC NEW (TJX): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
Great Atlantic Pac (NYSE:GAP)
Historical Stock Chart
From Jun 2024 to Jul 2024
Great Atlantic Pac (NYSE:GAP)
Historical Stock Chart
From Jul 2023 to Jul 2024