We have reaffirmed our long-term Neutral recommendation on
) with a target price of $44.00.
Gap is one of the leading players in the highly fragmented
specialty retail sector, offering a diverse range of clothing,
accessories and personal care products for men, women, children
and infants. We believe that its flagship brands - including Gap,
Banana Republic, Old Navy, Piperlime and Athleta - complement one
another, thereby strengthening the company's position among
apparel retailers. This was apparent from the bygone quarter, in
which Gap posted impressive top and bottom-line performance,
which easily surpassed the Zacks Consensus Estimate.
Moreover, Gap witnessed resurgence in its comparable sales and
total sales performance, driven by its consistent endeavors to
remain buoyed on the growth trajectory. The company's turnaround
strategies have paid off well as is evident from its comparable
store sales performances over the last several months. During the
period from Jan to May 2013, the company registered positive
year-over-year comparable store sales growth in each month,
except for March.
Furthermore, we believe that this Zacks Rank #2 (Buy) company
has proved its merit in controlling expenses, and remains
committed toward reducing costs across products and most
operating categories. Moreover, Gap is adopting a balanced
approach to revive its brands, while keeping its focus on
controlling inventories and maximizing gross profits.
However, we remain wary of the stock's future performance due
to a possible rise in both input costs and inventory levels,
which may consequently slacken the company's sales and margin
growth. Moreover, we are concerned about Gap's global expansion
plan in the face of its persistent negative international comps
results. Alongside, stiff competition and lingering economic woes
remain short-term deterrents for the stock.
Other Stocks to Consider
Other companies worth a look in the apparel retail industry
Foot Locker, Inc.
Stein Mart Inc
Pacific Sunwear of California Inc
) - all of which carry a Zacks Rank #2 (Buy).
FOOT LOCKER INC (FL): Free Stock Analysis
GAP INC (GPS): Free Stock Analysis Report
PAC SUNWEAR CAL (PSUN): Free Stock Analysis
STEIN MART INC (SMRT): Free Stock Analysis
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