) witnessed considerable recovery in its comparable sales and
total sales performance, driven by its relentless endeavors to
keep itself on the growth trajectory. The company's efforts have
paid off well in an economy, which is looking for ways to
withstand the financial turmoil that seems to have no end.
During the period from February to November this year, the
company 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
average growth of approximately 4.4%. In the first ten 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
and 3% in November, while it remained flat in June and declined
2% in April.
Monthly sales data for Gap also showed a decent performance.
Between February and November 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 and 3.4% in
Fiscal 2011 Sales: A Recap
In fiscal 2011, Gap reported a decline in comparable sales
every month, except April and June. Lackluster sales in the North
American region have continuously dragged down Gap's comparable
store sales throughout fiscal 2011. During the fiscal, the
company reported a decline of 4% in comparable sales compared
with an increase of 2% during the same period in fiscal 2010.
Accordingly, Gap's net sales inched down 1% to $14.55 billion
from the prior-year sales of $14.66 billion.
Initiatives Taken to Rebound Top Line
In an effort to improve customer experience and enhance
productivity per square footage, the company plans to
strategically close and consolidate square footage at Gap and Old
Navy brands. Gap intends to deliberately reduce its Gap North
America store counts to 950 by the end of fiscal 2013, including
700 specialty stores and approximately 250 outlets.
Contrary to this, the company is planning aggressively to
expand its international and franchise business. Moreover, it
intends to increase Gap store count in China to approximately 45
during current fiscal.
In a drive to boost its international operations, Gap also
consolidated its foreign business under one division in London.
Lackluster sales in North America compelled the company to
explore the overseas market. In order to counter the domestic
market saturation, Gap is aiming to generate 30% of total sales
from overseas operations and online business by fiscal 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. These moves are expected to further strengthen its
top and bottom lines, moving forward.
Results So Far
Despite exhibiting consistently weak performances in all four
quarters of fiscal 2011, the company reported a strong result for
the first quarter of fiscal 2012 with net sales increasing 5.8%.
The robust performance was primarily driven by a 4% growth in
comparable store sales. As a result of the increased top line,
the company's earnings climbed 17.5% year over year to 40 cents
During the second quarter of fiscal 2012, Gap's net sales grew
5.6% year over year primarily driven by 4% increase in comparable
store sales. Driven by increased sales, along with improved
margins and lower share counts, the company's earnings per share
jumped 40% year over year to 49 cents from 35 cents in the
The company's net sales for third-quarter increased 8.0% year
over year primarily due to a growth of 6% in comparable store
sales. Quarterly earnings came at 63 cents per share, up 66% from
comparable quarter last year. Strong earnings performance was
mainly driven by an increase in sales along with improved margins
and a lower share count.
Bolstered by better-than-expected quarterly performance so far
during fiscal 2012, the company raised its earnings guidance for
the current fiscal to $2.20-$2.25 per share from $1.95-$2.00
projected earlier. Moreover, Gap is now anticipating a 12.0% rise
in operating margin during fiscal 2012, up from the previous
guidance of 11.0%.
We believe that the company's long-term strategic moves along
with disciplined cost management measures will not only provide
financial flexibility, but also will help the company drive value
proposition. Moreover, Gap's globally recognized brands
complement each other, enabling it to leverage its position in
Gap, which competes with
American Eagle Outfitters Inc.
The TJX Companies Inc.
), currently holds a Zacks #2 Rank, which translates into a
short-term Buy rating. Moreover, we are maintaining our long-term
'Outperform' recommendation on the stock.
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