) witnessed considerable recovery in its comparable sales and total
sales performance, driven by its relentless efforts to be on the
growth curve. The company's efforts have paid off well in an
economy, which is looking for ways to shield itself from the
financial turmoil that seems to have no end.
During the period from February to July, 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 six months of fiscal 2012, comps increased 4% in
February, 8% in March, 2% in May, flat in June and 10% in July,
while it declined 2% in April.
Monthly sales data for Gap also showed a decent performance.
Within February to July 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 and 12% in July.
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 from 15 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,
Results so far
Despite a consistent weak performance 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 per share.
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. On the back of increased sales along with improved
margins and lower share counts, the company's earnings per share
climbed 40% year over year to 49 cents from 35 cents earned in the
Bolstered by better-than-expected quarterly performance so far
during fiscal 2012, the company raised its earnings guidance for
the current fiscal to $1.95 - $2.00 per share from $1.78 - $1.83
projected earlier. Moreover, Gap is now anticipating an 11% rise in
operating margin during fiscal 2012, up from previous guidance of
We believe that the company's long-term strategic moves along
with disciplined cost management measures will not only provide
financial flexibility, but will also help the company drive value
proposition. Moreover, Gap's globally recognized brands complement
each other, enabling it to leverage its position in the sector.
Gap, which competes with
American Eagle Outfitters Inc.
The TJX Companies Inc.
), currently holds a Zacks #1 Rank, which translates into a
short-term Strong Buy rating. However, we remain slightly cautious
on the stock and uphold our long-term 'Neutral' recommendation
until we s see further catalysts before becoming more positive on
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