Gap Inc. (GPS) reported comparable store sales slipping by 3% year-over-year. While sales were slightly lower, which is not unique amid the current economic environment, GPS shares continued climbing and are trading close to a 52-high. The company also recently released sad news, announcing that Donald G. Fisher, co-founder of Gap, died after a long and heroic battle with cancer.
Company Description
Gap Inc. is a global specialty retailer that sells clothing, accessories and personal care products for men, women, children and babies under the Gap, Old Navy, Banana Republic, Piperlime and Athleta brands. The company operates stores in the United States, Canada, the United Kingdom, France, Ireland and Japan.
Gap also has franchise agreements with unaffiliated franchisees to operate Gap and Banana Republic stores in many other countries around the world. Under these agreements, third parties operate or will operate stores that sell apparel, purchased from Gap, under Gap’s brand names.
Co-founder Dies After a Long and Heroic Battle with Cancer
The company recently announced that Donald G. Fisher, co-founder of Gap, died after a long and heroic battle with cancer. He was 81.
Donald Fisher opened his first Gap store 40 years ago last month. A life-long resident of San Francisco, he was also known for his commitment to philanthropic and civic activities. Along with his wife Doris, Mr. Fisher believed that opportunities existed for a retail company that could provide consumers with a variety of fit and style options. In 1969, the Fishers raised $63,000 to launch a single jeans and music store called The Gap (named for “the generation gap”) in San Francisco.
“Today we lost a friend, a mentor and a great visionary,” said Glenn Murphy, CEO and Chairman of the Board of Gap Inc. “Don and Doris took a simple idea and turned it into a brand recognized as a cultural icon throughout the world and changed the face of retail forever. ”
Solid Back to School performance at Old Navy
Gap posted net sales of $1.12 billion for the month of August, a 2% dip from the year-prior total. Comparable store sales slipped by 3% year-over-year.
“During August, customers responded well to our denim collections at Gap and Old Navy,” said Sabrina Simmons, chief financial officer of Gap Inc. “We were especially pleased by the progress at Old Navy and its strong back to school performance, which helped support total company merchandise margins significantly above last year.”
Old Navy sales came in 4% above the previous year’s total.
Bullish Forecasts
Analysts polled by Zacks are bullish on earnings. Current full-year estimates of $1.37 per share up 2 cents in just the past week. For the following year, the Zacks Consensus Estimate of $1.48 per share was also bumped up by 2 cents over the past week.
Gap boasts an impeccable record of exceeding earnings projections. Dating back to December 2004, the company topped the Zacks Consensus every time with the exception of 1 match.
A Strong Second Quarter Helped Push Shares Higher
In mid-August, the company reported second-quarter earnings 33 cents per share, beating the Zacks Consensus Estimate by 3% and outpacing last year’s 32 cents.
Net sales of $3.25 billion came in below the previous year’s $3.50 billion. Comparable store sales declined 10% year-over-year. Online sales, however, showed an increase of 17% from the year-prior.
“We’re proud to deliver second quarter earnings per share above last year, especially during a challenging environment,” said Glenn Murphy, chairman and chief executive officer of Gap Inc. “Building upon two years of work improving our economic model, we’re now putting further emphasis on changing the trajectory of our top line performance. Our focus is to find the right balance between maintaining our cost discipline and making appropriate, targeted investments to gain back market share.”
Shares, which are nearing a 52-week high, climbed higher after delivering a stellar second quarter, outperforming the market by about 10%. For the past year, GPS is more than 20% ahead of the market.
GPS Stacks Up Well Against Industry Numbers
Gap, a Zacks #1 Rank (Strong Buy), has a solid balance sheet, showing no debt. The company’s return on equity of 21% nearly triples the industry average of 8%. Its net profit margin of 7% eclipses the industry average of 1%. Gap also offers an industry-leading dividend yield of 1.6%. Zacks Investment Research
