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Gap's May Comps Reveal Upward Trend

Zacks Equity Research

Gap Inc. (GPS) reported comparable-store sales (comps) increase of 7% for the 4 weeks ended Jun 1, 2013 compared with a 2% rise registered for the 4 weeks ended Jun 2, 2012, driven by strong results at its namesake Gap and Old Navy stores.

Moreover, net sales totaled $1.22 billion for the 4 weeks ended Jun 1, 2013, up 11% compared with sales of $1.10 billion for the 4 weeks ended May 26, 2012.

The difference in the year-ago period comparisons for comps and net sales is primarily due to the inclusion of an additional week in fiscal 2012.

Global brand-wise, comps performances at Gap Global were up 8% compared to a 4% increase in the prior-year period, while comps at Banana Republic were flat compared to a 7% increase recorded last year. Old Navy’s comps increased 9% versus a 1% decline in May last year.

The improvement in comps and sales for May mainly came from the favorable customer response to the company’s summer assortments across all brands as well as the sustained impetus in its businesses.

Gap, which witnessed a phase of declining comparable-store sales and reduced profitability, is now gradually treading the growth path, based on turnaround strategies as evident from its solid comps and sales performance in fiscal 2013 so far.

Earlier this week, Gap announced that it is taking its global expansion plans a step further 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 marching ahead with its long-term plans by reducing its 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.

Recently, 3 other retailers – Zumiez Inc. (ZUMZ), Rite Aid Corp. (RAD) and The Cato Corp. (CATO) – reported comparable-store sales increase of 1.1% and decline of 1.5% and 2%, respectively for the month of May.

This Zacks Rank #2 (Buy) company is scheduled to release its June sales results on Jul 11, 2013.

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