Gap's July Comps Surge


The positive-negative comparable store sales (comps) trend continues at Gap Inc. (GPS). Last week, this global fashion retailer posted a 10% rise in comps for the four week period ended July 30, 2012 versus a 5% decline witnessed in the comparable prior-year period. Last month, Gap had registered flat comps (five-week period ended June 30, 2012) against a 1% increase recorded in June 2011.

The positive comps in July mainly ride on the company’s solid performances in domestic as well as global markets. Moreover, net sales in July 2012 totaled $1.06 billion, up 12% compared with the prior-year period sales of $950 million.

July comps at Gap North America spiked 13% against a 6% decline recorded in the prior-year period. Banana Republic North America’s same-store sales were up 8% versus a 4% dip recorded in the July last year. Results at its Old Navy North America segment reflected a robust 12% rise in comps compared with a 3% fall in the prior-year period. The company’s International business recorded a year-over-year comps growth of 4% versus 4% decline in the year-ago period.

Second Quarter Sales Performance

During second-quarter 2012, Gap’s net sales increased 6% year over year to $3.58 billion from $3.39 billion in the previous-year quarter. Moreover, the company registered a growth of 4% in its comps against a 2% decline in the prior-year period.

The company’s second-quarter comps mainly benefited from the continued positive trend in its North American business. Comps for the month of June 2012 remained positive at all Gap’s segments, except International. During the quarter, comps at the company’s Gap North America, Banana Republic North America and Old Navy North America improved 7%, 7% and 3%, respectively. Whereas, the company’s International business comps declined 5% year over year.

Looking ahead, bolstered by solid quarterly sales performance, the company now anticipates second-quarter earnings to be in the range to 47 cents – 48 cents per share compared with 35 cents earned in the year-ago quarter. The current Zacks Consensus Estimate stands at 48 cents per share, which coincides with the company’s higher-end guidance range. Moreover, Gap expects inventory to be below previous guidance of flat year over year.

Year-to-Date Sales Synopsis

Year-to-date, the company’s net sales increased 6% to $7.06 billion compared with $6.68 billion in the prior-year period. Improvements in net sales were primarily driven by 4% growth in the company’s comps figure.

Gap is scheduled to release its second-quarter 2012 earnings results on August 16, 2012.

Recently, the company’s competitors, such as Ross Stores Inc. (ROST) and Nordstrom Inc. (JWN) also reported positive same-store sales for the month of July 2012. Comps growth at Ross was 7% in July, while Nordstrom recorded 0.9% growth.

We believe that Gap’s long-term strategic moves along with disciplined cost management measures will not only provide the company with financial flexibility, but also will help it 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.

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