Gap's Strategies Drive Comps - Analyst Blog
2012年8月28日 - 12:15AM
Zacks
Gap Inc. (GPS)
witnessed considerable recovery in its comparable sales and total
sales performance, driven by its relentless efforts to be on the
growth curve. The company’s efforts have paid off well in an
economy, which is looking for ways to shield itself from the
financial turmoil that seems to have no end.
During the period from February to
July, the company registered improvements in comparable sales in
each month, except April. During that period, comps growth touched
a low of negative 2% and a high of 10%, thereby recording average
growth of approximately 4%. In the first six months of fiscal 2012,
comps increased 4% in February, 8% in March, 2% in May, flat in
June and 10% in July, while it declined 2% in April.
Monthly sales data for Gap also
showed a decent performance. Within February to July 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 registered sales
growth of 6% in February, 10% in March, flat in April, 4% in May,
2.2% in June and 12% in July.
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
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 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 a consistent weak
performance 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. On the back of increased
sales along with improved margins and lower share counts, the
company’s earnings per share climbed 40% year over year to 49 cents
from 35 cents earned in the prior-year quarter.
Bolstered by better-than-expected
quarterly performance so far during fiscal 2012, the company raised
its earnings guidance for the current fiscal to $1.95 - $2.00 per
share from $1.78 - $1.83 projected earlier. Moreover, Gap is now
anticipating an 11% rise in operating margin during fiscal 2012, up
from previous guidance of 10%.
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 will also
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 #1 Rank, which translates into a short-term Strong Buy
rating. However, we remain slightly cautious on the stock and
uphold our long-term ‘Neutral’ recommendation until we s see
further catalysts before becoming more positive 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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