With its relentless endeavors on turnaround strategies, Gap Inc. (GPS) is once again coming back on the growth track. We believe that the company’s efforts have paid off well, which is evident from its improving comps and sales performance in the recent months.
During the period Feb to Dec 2012, Gap registered improvements in comparable sales in each month, except April. In the same period, comps growth touched a low of negative 2% and a high of positive 10%, thereby recording an average growth of approximately 4.4%. In the first eleven months of fiscal 2012, comps increased 4% in February, 8% in March, 2% in May, 10% in July, 9% in August, 6% in September, 4% in October, 3% in November and 5% in December, while it remained flat in June and declined 2% in April.
Monthly sales data for Gap also showed a decent performance. Between Feb and Dec 2012, the company registered a minimum year-over-year flat sales growth and a maximum growth of 12%, reflecting an average growth of approximately 6% for the period. The company recorded sales growth of 6% in February, 10% in March, flat in April, 4% in May, 2.2% in June, 12% in July, 9.1% in August, 7.4% in September, 8% in October, 3.4% in November and 5% in December.
However, one of the company’s peers, Ross Stores, Inc.’s (ROST) comps and net sales growth for the eleven-month period were higher. The company registered average comps and net sales increase of 7% and 11%, respectively for the period.
Turnaround Strategies Taken to Boost Top Line
As part of its strategy, the company is planning to deliberately reduce its Gap North America store count to 950 by the end of fiscal 2013. Contrary to this, the company is aggressively expanding its international business through both company-operated and franchise stores, which its peers – American Eagle Outfitters, Inc. (AEO) and Abercrombie & Fitch Company (ANF) – are following. Gap intends to generate 30% of total sales from overseas operations and online business by 2013.
To achieve this, Gap has opened stores in China, Italy and Australia, and has launched the e-commerce business in more than 90 markets. We expect that the moves will further strengthen its top and bottom lines. Further, we believe that the company’s recent acquisition of INTERMIX Holdco Inc. will not only help Gap in expanding its brand offerings, but will also regain its fashion leadership status.
Gap currently holds a Zacks Rank # 2 (Buy).
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