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Gap (GPS) Stock Struggles After Dismal March Sales Results

Zacks Equity Research

The Gap, Inc. GPS lost 8.7% in the after-market trading session yesterday, as the company released dismal comparable store sales (comps) and sales numbers for Mar 2016, thus marking its 12th consecutive month of negative comps data. Moreover, management addressed its concerns for the first quarter of fiscal 2016 alongside the March sales results, which drove the negative investor sentiment deeper.

The company reported March net sales of $1.43 billion, which dropped 6.5% from $1.53 billion recorded for the five weeks ended Apr 4, 2015.

Comps for the five weeks ended Apr 2, 2016 were down 6% as against a 2% rise witnessed last year. The fall in March comps was caused by overall softness in the company as no brand could be the saving grace for Gap.

Comps at Gap Global slipped 3%, compared to a 7% decline last year. Further, Old Navy Global, which was a knight in shining armor for Gap, saw its comps slump 6% as against a 14% jump recorded last year. Finally, performance at Banana Republic Global continued to deteriorate, as the brand recorded a 14% plunge following a 3% drop last year.

Sources revealed that Banana Republic is battling issues on account of being too fashion-forward. Apart from this, the company failed to exploit Easter to the extent it had expected. Moreover, sluggish consumer traffic not only led to soft sales but also caused greater inventories to be piled up for April.

This is most likely to pressurize Gap to clear excess inventory at discounted rates, which in turn is expected to weigh on the company’s gross margins for the first quarter of fiscal 2016. Further, the company’s murky sales came in just at the onset of spring, which per its new leader, Peck, was anticipated to be a turning point for Gap.

Though these factors currently pose concerns for the company, it remains focused on undertaking necessary strategic initiatives to improve performance this year. Let’s wait and see what’s in store for Gap, going forward.

Gap, which is scheduled to release its April sales results on May 9, 2016, currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Some better-ranked stocks in the same industry worth considering include American Eagle Outfitters, Inc. AEO, Destination XL Group, Inc. DXLG and Express Inc. EXPR, each carrying a Zacks Rank #1 (Strong Buy).

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