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Gap Downgraded to Strong Sell on Dismal Sales Trends

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On Oct 13, 2015, Zacks Investment Research downgraded leading specialty retailer, Gap Inc.GPS to Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Despite a globally recognized brands portfolio, Gap has been portraying dismal sales trend for a while now, mainly hurt by the intensifying currency headwinds. Further, disappointing performance of its core Gap and Banana Republic Global brands are pressing concerns for the company.

The company's bleak September sales results, which was followed by a downbeat guidance for the third quarter, stand witness to its woes. Gap's comps for September decelerated 1% against flat comps reported in the prior-year period. Net sales totaled $1.46 billion for the five weeks ended Oct 3, 2015, down 1% year over year. On a constant currency basis, sales improved 2% from the prior-year period.

The apparel retailing giant's downfall in September was due to double-digit decline in comparable-store sales (comps) at its Banana Republic brand and negative foreign currency impact. However, the company's Old Navy brand sustained its comps growth trend.

Though the company's management termed September as a challenging month, it also revealed that necessary actions are being implemented to revive the top-line results.

Following another dismal month, the company expects gross margin for the third quarter of fiscal 2015 to be in line with that of the second-quarter fiscal 2015 level. The company had reported gross margin of 37.4% in the fiscal second quarter.

This triggered a downtrend in the Zacks Consensus Estimate for fiscal 2015 and 2016, which dipped 4.4% to $2.62 per share and 4.1% to $2.80 per share, respectively, over the past 30 days.

Given Gap's dismal sales trend, we would prefer to wait and see if the company can combat these headwinds with its solid strategies.

Stocks to Consider

Some better-ranked stocks in the same industry include Citi Trends Inc. CTRN , Foot Locker Inc. FL and Stein Mart Inc. SMRT , each carrying a Zacks Rank #1 (Strong Buy).

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

GAP INC (GPS): Free Stock Analysis Report

FOOT LOCKER INC (FL): Free Stock Analysis Report

CITI TRENDS INC (CTRN): Free Stock Analysis Report

STEIN MART INC (SMRT): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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