TJX TJX Companies Inc

Gap Inc. (GPS), one of the leading global specialty retailers, reported a 6.0% drop in same-store sales for the four-week period ended October 29, 2011. Results for the month also compared unfavorably with the year-over-year same-store sales growth of 4.0%.

Gap witnessed a contraction in same-store sales across each of its segments except Banana Republic North America. The company reported a decline of 9.0% in Old Navy North America segment compared with a positive 4.0% growth in the prior-year period. Gap North America’s same-store sales declined 5.0% versus positive 7.0% in the prior-year period. The company’s same-store sales in the international region plunged 7.0% compared with a growth of 2.0% last year.

Net sales for the four-week period ended October 29, 2011 declined 4.0% to $1.14 billion compared with net sales of $1.19 billion in the prior-year period, primarily due to sluggish performances across all of the company’s businesses.

Third-quarter 2011 Sales

The company’s third quarter ended October 29, 2011 witnessed a contraction in same-store sales across each of its segments. The company registered a decline of 5.0% in Gap North America business versus a growth of 2.0% in the prior-year quarter. Old Navy North America’s segment declined 4.0% versus flat in the year-ago period. The company’s Banana Republic North America business inched down 1.0% compared with an increase of 2% in the prior-year period. The company’s same-store sales in the international region plunged 10.0% compared with a growth of 4.0% last year.

Consequently, Gap’s overall same-store sales during the quarter declined by 5.0% compared with an increase of 1.0% in the previous year quarter. The company’s net sales inched down 2.0% to $3.59 billion compared with $3.65 billion in the prior-year quarter.

Third-quarter 2011 Earnings Guidance

The company has issued its earnings guidance for third-quarter 2011 in the range of 35 to 37 cents per share.

Year-to-date Sales

On October 29, 2011, Gap completed 39 weeks of fiscal 2011 and reported a decline of 3.0% in same-store sales compared with an increase of 2.0% in the prior-year period. Net sales during the period remained almost flat year over year at $10.27 billion.

Gap operates in a highly fragmented market and competes with well-established rivals, such as American Eagle Outfitters Inc. (AEO) and The TJX Companies Inc. (TJX). Moreover, reduction in disposable income coupled with lower consumer discretionary spending arising from the recent economic downturn may dent the company’s future operating performance.

Gap’s shares maintain a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating. Our long-term recommendation on the stock remains ‘Neutral’.

 
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