Based on better-than-expected quarterly performance and
increased outlook for fiscal 2012, we have upgraded our long-term
) to 'Outperform' from 'Neutral'. Moreover, the company maintains a
Zacks #1 Rank implying a short-term Strong Buy rating on the
The company's lately reported earnings of 49 cents per share for
the second quarter of fiscal 2012 climbing 40% from the prior-year
earnings of 35 cents and beating the Zacks Consensus Estimate by a
penny. The year-over-year improved results were primarily driven by
increased sales, better margins and lower share counts. Moreover,
driven by 4% growth in comparable-store sales, Gap's revenue for
the quarter increased 5.6% year over year to $3,575 million.
Buoyed by strong quarterly performance, management raised its
fiscal 2012 earnings guidance range to $1.95-$2.00 per share from
$1.78-$1.83 forecasted earlier. Moreover, Gap now anticipates an
increase of 11% in operating margin during fiscal 2012, up from the
previous guidance of 10%.
The company's relentless efforts to return to the growth curve
seem to be paying off, as evidenced by the solid comps and sales
performance in recent months. During the period from February to
August, the company registered improvements in comparable sales in
each month, except April. During that period, comps growth touched
a low of negative 2% and a high of 10%, thereby recording average
growth of approximately 4%. In the first seven months of fiscal
2012, comps increased 4% in February, 8% in March, 2% in May, flat
in June, 10% in July and 9% in August while it declined 2% in
Monthly sales data for Gap also showed a decent performance.
Within February to August 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 registered sales growth of 6% in February, 10% in
March, flat in April, 4% in May, 2.2% in June, 12% in July and 9%
We believe that Gap's long-term strategic moves, along with
disciplined cost management measures will not only provide
financial flexibility to the company, but also help it drive value
proposition. Moreover, Gap's globally recognized brands complement
each other, enabling it to leverage its position in the sector.
Gap's net revenue was $14.5 billion in the fiscal 2011. The
company mainly competes with national and local department stores
and discount stores, such as,
American Eagle Outfitters Inc.
The TJX Companies Inc.
), which offer products at fire sale prices.
Founded in 1969 and headquartered in San Francisco, Gap is a
leading retailer that operates Gap, Banana Republic, Old Navy,
Piperlime and Athleta brands. The offerings of the company's core
brands include clothing, accessories as well as personal care
products for men, women and kids. Gap operates in 90 countries
through a pipeline of 3,000 company-operated stores, 250 franchise
stores and e-commerce sites.
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