Is Turnaround on the Card for Gap? - Analyst Blog
29 12월 2011 - 6:00PM
Zacks
Holiday sales figure is bringing a
broad smile back to majority of soft-line retailers. However, can
Gap Inc. (GPS) join the pool of retailers who are
currently cheering the holiday sales?
Sadly, the company is caught up
with several challenges during this busiest shopping season of the
year. Adding to the agony is the disappointing Black Friday sales
result of the company.
What remains the
drag?
Lackluster sales in North American
region have continuously dragged down Gap’s comparable store sales
throughout fiscal 2011. The company is losing market share against
its rivals such as American Eagle Outfitters Inc.
(AEO) and The TJX Companies Inc. (TJX). Moreover,
the Black Friday weekend did not help the company to inflate its
sales figures in November 2011. However, the company is taking
strategic steps to counter the domestic market saturation.
Perhaps, a Year to
Forget
Since the beginning of fiscal 2011,
i.e., February 2011, Gap has reported a decline in comparable sales
in every month, leaving April and June as an exception.
Year-to-date the company has reported a decline of 3% in comparable
sales compared with an increase of 3% during the same period in
fiscal 2010. Accordingly, Gap’s year-to-date net sales declined 1%
year-over-year to $11.73 billion.
During the last three quarters of
fiscal 2011, the company’s declining comparable sales has
negatively impacted its quarterly performance. Comparable sales in
first quarter declined 3%, which resulted in a decline of
approximately 11% in earnings per share. During second quarter,
Gap’s earnings per share declined approximately 3%, primarily due
to a decline of 2% in comparable sales. The third quarter was also
not a happy tale for the company, as its comparable sales fell
massively by 5%, dragging earnings per share down by 21%.
Strategic
Moves
In an effort to improve customer
experience and enhance productivity per square footage, the company
intends to strategically close and consolidate square footage at
Gap and Old Navy brands. Gap wants to strategically reduce its Gap
North America store counts to 950 by the end of fiscal 2013,
consisting 700 specialty stores and approximately 250 outlets.
Contrary to this, the company is
planning aggressively to expand its international and franchise
business. The company intends to triple the Gap store count in
China from 15 to approximately 45 during the next 12 month period.
Moreover, the company is anticipating opening a total of 60 new
franchise stores by the end of fiscal 2011, of which it has already
opened 33.
Moreover, in a drive to boost its
international operations, Gap 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 end, Gap has opened stores in China, Italy
and Australia, and has launched the e-commerce business in more
than 90 markets, which are expected to further strengthen its top-
and bottom-lines, moving forward.
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.
Currently, Gap’s shares maintain 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 INC (GPS): Free Stock Analysis Report
TJX COS INC NEW (TJX): Free Stock Analysis Report
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