) recently reported its November sales results with 8% growth in
revenues and a 2% rise in comparable store sales. These figures
look good considering that this year's holiday season
(November-December) isn't going too well for U.S. retailers. A
while back ShopperTrak predicted that the 2013 holiday season will
see its weakest gains since 2009, and early sales trends have
confirmed this forecast.
Backed by its ability to quickly turnaround the latest fashion
trends, Gap Inc has been resilient in the face of industry weakness
for some time now. We believe that with sustained strength on this
front and introduction of appealing marketing campaigns and offers,
the company is well-positioned for a good holiday season.
Our price estimate for Gap Inc. at $50
implies a premium of about 30% to the market price.
See our complete analysis for Gap Inc.
This Year's Holiday Season Will Be Weak For U.S.
According to an early forecast by ShopperTrak, the holiday
season this year will see its weakest gains since 2009, on account
of cautious consumer spending, a shorter season, and a change in
shopping trends. Retail sales in November and December are
expected to rise by just 2.4% while they improved by 3% last year
and 4% in 2011 and 2010 for the same period. Moreover, the
store traffic is likely to fall by almost 1.4%. This is not a
pleasing picture given that last year's holiday season remained
weak despite a 2.5% increase in store traffic.
U.S. buyer sentiment is still weighed down by political economic
issues, increasing healthcare costs, slow job growth, increased
taxes and gasoline prices. According to a poll conducted by
Reuters, about 27% of the consumers were planning to lower their
spending on apparel this holiday season. Moreover, the holiday
season this year is shorter than the last year. Since there are
only 25 days between Black Friday and Christmas as opposed to 31
days in 2012, it provides a smaller window to gain from holiday
spending. So far, the holiday retail sales trends have been inline
with ShopperTrak's prediction. U.S. retail sales on Thanksgiving
and Black Friday (two of the most important holidays) increased by
However, Gap Inc performed Better
While most apparel retailers were struggling to attract
customers, Gap Inc's November sales increased by a healthy 8%. The
company has been among the few apparel retailers in the U.S. who
have been able to attract customers amid the economic
weakness. U.S. buyers have shown low brand loyalty as they
have been readily shifting to competitors that provide latest
fashion products at affordable prices. Possessing a vast and
flexible supply chain that enables strong inventory management, Gap
Inc has remained on top of changing fashion trends.
During the holiday season, the company launched a new marketing
campaign "Make Love" featuring famous personalities such as Tony
Bennett, Harry Belafonte, Alexandra and Philippe Cousteaus.
This campaign ran on print, social, direct media as well as cinema
plus, allowing Gap Inc to strengthen its connection with customers.
It even opened more than 700
stores for more than 29 hours on Black Friday attracting customers
with its "$1 million to one lucky shopper" offer. Additionally, the
retailer provided a seamless shopping experience across all the
channels, which helped it in driving greater store traffic. Since
these efforts assisted Gap Inc's growth in November, we believe
that the company is well-positioned for the remaining holiday
season as well.
How a Company's Products Impact its Stock Price at