Gap Back on Growth Trajectory - Analyst Blog
31 12월 2012 - 10:15PM
Zacks
Gap Inc. (GPS)
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 withstand the
financial turmoil that seems to have no end.
During the period from February to
November this year, the company registered improvements in
comparable sales in each month, except April. In the same period,
comps growth touched a low of negative 2% and a high of positive
10%, thereby recording average growth of approximately 4.4%. In the
first ten months of fiscal 2012, comps increased 4% in February, 8%
in March, 2% in May, 10% in July, 9% in August, 6% in September, 4%
in October and 3% in November, while it remained flat in June and
declined 2% in April.
Monthly sales data for Gap also
showed a decent performance. Between February and November 2012,
the company registered a minimum year-over-year flat sales growth
and a maximum growth of 12%, reflecting an average growth of
approximately 6% for the period. The company recorded sales growth
of 6% in February, 10% in March, flat in April, 4% in May, 2.2% in
June, 12% in July, 9.1% in August, 7.4% in September, 8% in October
and 3.4% in November.
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 deliberately 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, it intends to increase Gap store count in China
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 fiscal 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 exhibiting consistently
weak performances in all four quarters of fiscal 2011, the company
reported a strong result for the first quarter of fiscal 2012 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.
During the second quarter of fiscal
2012, Gap’s net sales grew 5.6% year over year primarily driven by
4% increase in comparable store sales. Driven by increased sales,
along with improved margins and lower share counts, the company’s
earnings per share jumped 40% year over year to 49 cents from 35
cents in the prior-year quarter.
The company’s net sales for
third-quarter increased 8.0% year over year primarily due to a
growth of 6% in comparable store sales. Quarterly earnings came at
63 cents per share, up 66% from comparable quarter last year.
Strong earnings performance was mainly driven by an increase in
sales along with improved margins and a lower share count.
Bolstered by better-than-expected
quarterly performance so far during fiscal 2012, the company raised
its earnings guidance for the current fiscal to $2.20–$2.25 per
share from $1.95–$2.00 projected earlier. Moreover, Gap is now
anticipating a 12.0% rise in operating margin during fiscal 2012,
up from the previous guidance of 11.0%.
Our
Recommendation
We believe that the company’s
long-term strategic moves along with disciplined cost management
measures will not only provide financial flexibility, but also will
help the company drive value proposition. Moreover, Gap’s globally
recognized brands complement each other, 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.
Moreover, we are maintaining our long-term ‘Outperform’
recommendation on the stock.
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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