The Gap, Inc. GPS is a leading player in the highly fragmented specialty retail sector that offers a diverse range of clothing, accessories and personal care products. The company’s globally recognized brands complement each other and enable it to leverage its position in the sector.
Gap gains strength from its expansion endeavors, efforts to enhance eCommerce and omni-channel capabilities, and commitment toward boosting shareholder value.
In an effort to penetrate deeper into the over $1.4 trillion global apparel retail market, the company has been focused on increasing its international presence. It has aggressively expanded its global footprint across emerging markets including China, Russia, South Africa and certain Latin American countries over the past few years.
Further, with consumer preference shifting toward online shopping, Gap is augmenting its eCommerce and omni-channel capabilities by adopting a number of initiatives. The company has been extending its “find-in-store”, “Reserve-in-Store” and “Order in Store” facilities across various outlets. Also, it partnered with European fashion eCommerce site, Zalando, where it will introduce its online shop. We believe that these initiatives will boost its top line in the long run.
Moving to financials, Gap has a track record of maintaining disciplined capital management along with a strong balance sheet. The company also generates strong free cash flow, which helps to boost earnings per share through large stock repurchases, and enhance shareholder value by consistently raising its dividend.
All these factors speak positively about the premier specialty retailer and underscore its future prospects.
However, the company has been portraying a dismal sales trend, as its comparable store sales (comps) and sales declined for the month of August, following the negative numbers posted in the second quarter of fiscal 2015. Intensifying currency headwinds and port labor disputes at the West Coast have been pressing concerns for the company.
Further, the dismal performance of its core Gap and Banana Republic Global brands adds to the woes. Persistence of these headwinds is likely to dent the top line and weigh on Gap’s overall performance, thus posing a threat.
Hence, we would prefer to wait and see if this Zacks Rank #3 (Hold) company can combat these headwinds with its solid strategies.
Stocks to Consider
Better-ranked stocks in the same industry include Express Inc. EXPR, Foot Locker, Inc. FL, each carrying a Zacks Rank #1 (Strong Buy) and American Eagle Outfitters, Inc. AEO, with a Zacks Rank #2 (Buy).
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