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Gap (GPS) Unveils Buyback Plan to Boost Shareholder Returns

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The Gap, Inc. GPS is focused on boosting investor confidence through several growth initiatives and shareholder-friendly moves. To this end, the company’s board of directors recently authorized repurchasing $1 billion shares, replacing its existing program.

Also, the company announced to maintain an annual dividend of 97 cents per share (24.25 cents quarterly) in fiscal 2019. The dividend for first-quarter fiscal 2019 is payable on May 1, 2019, to shareholders of record as of Apr 10.

Gap has a track record of maintaining a disciplined capital-allocation regime along with a strong balance sheet. This enables the company to boost earnings per share through large stock repurchases and helps enhance shareholder value via consistent dividend hikes. In third-quarter fiscal 2018, it bought back 3.6 million shares for approximately $100 million and paid dividends worth 24.25 cents per share. This dividend reflects more than 5% growth year over year.

Apart from this, the company remains focused on enhancing e-commerce and omni-channel capabilities by adopting a number of initiatives. Notably, it increased online presence across all of its brands. It remains well on track to reach its target of more than $3.5 billion in online sales in fiscal 2018.

As part of expanding omni-channel capabilities, this Zacks Rank #3 (Hold) company rolled out the Buy Online Pick up in Store (BOPIS) for its Old Navy brand throughout the nation, which is receiving positive response from customers. Previously, the company expanded omni-channel endeavors like the “find-in-store”, “Reserve-in-Store” and “Order in Store” capabilities across various stores. Further, it remains on track to launch new personalization engine that is powered by customer data and continued significant investment in its omni-channel services.

Despite the aforementioned upsides, there are a few roadblocks hampering Gap’s performance. We note that the company has been grappling with dismal comps for the Gap brand, stemming from operational headwinds across the business and assortment issues. This has been weighing upon the company’s total comps metric.

While management remains focused on reviving the Gap brand, it still expects the brand’s results to be down in fiscal 2018. Such downsides led management to provide a bleak earnings outlook for fiscal 2018 when it reported fiscal third-quarter results. Such factors marred investors’ optimism in the stock.

Markedly, shares of Gap, which belongs to Retail- Apparel and Shoes industry, have declined approximately 18% in the past six months.

Nevertheless, we expect that the company’s well-chalked efforts to meet consumer needs aptly will keep boosting the business, and thereby offer cushion to the aforementioned challenges. This combined with prudent moves to enhance shareholder returns are expected to revive investors’ sentiments in the forthcoming period.

3 Better-Ranked Stocks to Consider

Zumiez Inc. ZUMZ delivered average positive earnings surprise of 13.3% in the trailing four quarters. It has a long-term earnings growth rate of 12.5% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boot Barn Holdings, Inc. BOOT has a long-term earnings growth rate of 20.7% and a Zacks Rank #1.

Foot Locker, Inc. FL has a long-term earnings growth rate of 7.5% and a Zacks Rank #2 (Buy).

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