) is a global specialty retailer that operates the
brands and competes with retailers such as Aeropostale (
Abercrombie & Fitch
) and Urban Outfitters (
). We estimate that Gap and Old Navy stores each constitute
roughly 27% and 26% of our $35.51 our price estimate
for Gap's stock, which is around 50% above the market price. Banana
Republic stores add an additional 17% while Internet
orders & franchise business constitute 22%.
Slow Start to 2011
Though Gap did well for the full year 2010, it particularly
struggled in January and February this year. In January, the YoY
comparable store sales for Gap were flat while that for Old Navy
dropped 3% in North America. For the full fiscal year 2010,
company-wide net sales grew 3% with comparable store sales up
In February, company net sales were down 2% while company wide
comparable sales, which includes the comparable online sales,
dropped 3%. The YoY comparable sales including the associated
comparable online sales for Gap, Old Navy and Banana Republic were
down 1%, 4% and 4% respectively and international comparable sales
were down 7%.
Some of its competitors also did considerably well. For example
the same store sales for Buckle and Wet Seal increased 2.1% and 7%
Going After New Customers
In order to gain market share, Gap is planning to realign its
marketing strategy to cover a larger demographic including younger
customers as well as African, Spanish and Asian customers. In
addition, the company is looking to continue its international
growth plans this year, firstly in Japan. After opening a Gap
flagship store in one of Japan's biggest shopping districts, it may
also launch an e-commerce site specifically for Japan.
We estimate that the revenue per square foot for Gap stores
decreased from between from 2005 to 2008, driven by falling
comparable store sales. This was a continuation of the trend that
started towards the end of the 90′s when the company started to
struggle with staying on top of emerging fashion trends. Failed
marketing campaigns and management decisions on real estate
strategy contributed to an increasing store base and falling
However, the revenue per square foot for Gap stores recovered to
nearly $400 in 2010. Going forward, we expect it to further
improve, as the company has significantly reduced its store base
and launched some successful marketing campaigns to reconnect with
its target demographic and is also trying to expand its customer
base. However, if weak sales data come in over the next few months,
there can be a downside to our forecasts.
If the revenue per square foot for Gap stores decreases to $300
by the end of our forecast period, it would result in a downside of
nearly 7% to our current price estimate for Gap's stock.
See our full estimates for Gap.