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Gap's Comps Continue to Disappoint - Analyst Blog

Gap Inc. ( GPS ), one of the leading global specialty retailers, reported a 5% drop in same-store sales for the four-week period ended November 26, 2011. Results for the month also compared unfavorably with the year-over-year same-store sales growth of 5%.

Gap witnessed a contraction in same-store sales across each of its segments except Banana Republic North America. The company reported a decline of 7% in Old Navy North America segment compared with positive 7% growth in the prior-year period.

Gap North America's same-store sales declined 2% versus positive 6% in the prior-year period. The company's same-store sales in the international region plunged 9% compared to flat last year.

Net sales for the four-week period ended November 26, 2011 declined 2.6% to $1.47 billion compared with net sales of $1.51 billion in the prior-year period, primarily due to sluggish performances across all of the company's businesses.

Third-quarter 2011 Sales

Gap's overall same-store sales during the third quarter ended October 29, 2011 declined by 5% compared with an increase of 1% in the previous year quarter. The company's net sales inched down 2% to $3.59 billion compared with $3.65 billion in the prior-year quarter.

Year-to-date Sales

On November 26, 2011, Gap completed 43 weeks of fiscal 2011 reporting a decline of 3% in same-store sales compared with an increase of 3% in the prior-year period. Net sales during the period inched down 0.7% to $11.73 billion from the prior-year period sales of $11.81 billion.

Looking Ahead

Lackluster sales in North America compelled the company to explore businesses on other shores. In order to counter the domestic market saturation, the company aims to generate 30% of total sales from its overseas operations and online business by 2013.

To materialize this, Gap is making prudent investments in China. As per the company, China offers ample growth opportunity due to its greater consumer spending appetite. Moreover, forecasts say that the retail sales in China will increase over two-folds by 2015 from 15.4 trillion yuan last year. To bank upon this, Gap aims to increase its number of stores five-folds in China to 45 stores, up from its current count of 9 by the end of fiscal 2012.

Gap operates in a highly fragmented market and competes with well-established rivals, such as American Eagle Outfitters Inc. ( AEO ) and The TJX Companies Inc. ( TJX ). Moreover, reduction in disposable income coupled with lower consumer discretionary spending arising from the recent economic downturn may dent the company's future operating performance.

Gap's shares maintain a Zacks #2 Rank, which translates into a short-term Buy rating. Our long-term recommendation on the stock remains 'Neutral.

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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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