Shares of Gap Inc. (GPS) reached a new 52-week high of $43.39 on Jul 5, 2013, thereby beating its previous high of $43.36 on Jul 2, and eventually closed trade at $43.30. The average volume of shares traded over the last 3 months is approximately 3,630K. Moreover, the company currently trades at a forward P/E of 15.97x, a 28.3% discount to the industry average of 22.27x.
We believe that the strong price appreciation in recent times is primarily attributable to the stock reaching its ex-dividend date of Jul 8. Apart from this, the stock’s momentum is driven by the company’s consistent positive earnings surprise trend, strong revenue growth, impressive management guidance and strategies to expand its global reach.
Gap is one of the leading players in the highly fragmented specialty retail sector, offering a diverse range of clothing, accessories and personal care products for men, women, children and infants. We believe that its flagship brands – including Gap, Banana Republic, Old Navy, Piperlime and Athleta – complement one another, thereby strengthening the company’s position among apparel retailers.
This was apparent from the past quarter, in which Gap posted impressive top and bottom-line performances, which easily surpassed the Zacks Consensus Estimate. With respect to earnings surprises, Gap has topped the Zacks Consensus Estimate in 3 of the trailing 4 quarters with an average beat of 2.6%.
Moreover, Gap witnessed resurgence in its comparable sales and total sales performances, driven by its consistent endeavors to remain buoyed on the growth trajectory. During the period from Jan to May 2013, the company registered positive year-over-year comparable store sales growth in each month, except for March.
Furthermore, in early June, Gap announced plans to further its global expansion plans with the opening of franchise and standalone stores in Paraguay, Hungary and Mexico. Apart from this, the company is planning to extend its international operations to 8 Latin American countries – including Chile, Panama, Colombia, Mexico, Uruguay, Paraguay, Peru and Brazil.
Gap has been striding ahead with its long-term plans by reducing dependency on the North American specialty business, while increasing its online presence and expanding international operations. Moreover, Gap aims to generate 30% of its total sales from overseas operations and online business in 2013, versus 27% in fiscal 2012.
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