Talking Numbers

Minding the Gap

February sales results are in for Gap and like many retailers they're blaming their bad results on the bad weather.

Gap saw a 7% drop in sales to $929 million compared to February 2013's $966 million. Hardest hit were Gap's flagship stores, which saw a 10% drop in sales. In a release, the company said:

"The company noted that more than 450 stores experienced closures during February due to weather. The company also noted that February typically represents the smallest month of the first quarter."

After a drop of over $1 drop in share price Friday morning to $41.16 per share, the stock rebounded into positive territory before the market closed.

(Read: After-hours buzz: Gap, H&R Block, Finisar & More)

JC O'Hara, Chief Market Technician at FBN Securities, believes the stock's charts are worrisome.
"There's a lot going on with this chart," says O'Hara. "It's pretty sloppy. I don't know if that's the best technical term used to describe it but it's a term I'll use here."

Gap, it seems, has a lot of gaps when it comes to its price chart. That's when the lows of one day are much higher than the previous day's highs, or else the day's highs are lower than the previous day's lows.
"From a technical point of view, gaps are a sign of indecision [and] mispricing," says O'Hara. "That is concerning, especially over the short-term because it's hard to get an idea of short-term trend."

On a long-term basis, O'Hara says things were good for the stock so long as it stayed above its technically significant 150-day moving average.  Recently, though, it is trading in a range above and below it, raising a red flag, he believes.

O'Hara doesn't see much movement in the stock because he sees support for the stock at $36.50 on the low end and resistance above at $42.50, $44.00, and $46.00 per share. "There's really no risk-reward trade of being in this name right here," he says.

(Read: U.S. retailers say business picked up later in February)

Simeon Siegel, Senior Analyst at Nomura, agrees with O'Hara's short-term outlook on the stock but he thinks its long-term prospects are better based on how Gap runs its business.

"Operationally, they're doing everything you'd want them to doing," says Siegel. "They're bringing costs down and they're buying back stock," says Siegel. But, he believes the stock was punished this year for not matching its strong success last year.  That may provide a buying opportunity for long-term investors.

"We think you [can] get a better entry point," says Siegel. "Longer-term, we like what they're doing operationally."

To see the full discussion on what's next for Gap with O'Hara on the technicals and Siegel on the fundamentals, watch the video above.

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