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Income Investor: Gap Rallies Despite Uneven Turnaround

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G iveGap ( GPS ) credit. They've been pulling out all the stops in recent months to find the right growth recipe. It's been a bumpy road, to say the least, but the stock has rallied about 20% since hitting a low of 35.46 in mid-October.

Art Peck took over as CEO on Feb. 1. Previously, he was president of Gap's Growth, Innovation and Digital division, responsible for the digital strategy of Gap's $2 billion e-commerce business.

Online sales remain a focal point to offset sluggish sales at its namesake stores. In Q4, online sales totaled $792 million, up 13.5% from $698 million in the year-ago period.

International expansion is also a focus. The company added 39 stores in greater China, including 32 Gap stores and seven Old Navy stores. It plans to open 40 new stores in China in fiscal 2015.

Gap's value-driven Old Navy brand continues to resonate with consumers. In 2014, same-store sales rose 5%, but results at Gap and Banana Republic were soft. Sales fell 5% at Gap. They were flat at Banana Republic.

Gap's recent price action suggests that the market is optimistic that recent initiatives by the company will ultimately result in improved operational performance .

Investors will know soon enough when Gap releases March same-store sales data Thursday. Wall Street is hoping for improved results after February's 4% decline and January's 3% drop.

Besides its Gap, Banana Republic and Old Navy stores, Gap is also optimistic about two other brands in its stable. In 2008, it acquired Lululemon competitor Athleta for $150 million. In early 2013, it acquired women's fashion boutique Intermix for $130 million.

Gap recently announced a quarterly dividend of 23 cents a share, payable on April 29 to shareholders of record April 8. The new dividend gives it an annualized yield of 2.2%. Despite recent execution challenges, Gap boasts a solid dividend growth rate of 21%.

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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