Gap Inc. (GPS), one of the leading global specialty retailers, reported a decline of 10% in same store sales for the five-week period ended April 02, 2011. Results for the month compared unfavorably with same store sales increasing 11% for the five-week period ended April 03, 2010.
Gap has reported a decline in same store sales in every region, where it operates. The company's same store sales in the regions such as North America, Banana Republic North America, Old Navy North America and International has declined by 9%, 8%, 12% and 9% respectively.
Net sales for the period inched down 8% to $ 1.33 billion compared with net sales of $ 1.45 billion for the five-week period ended April 03, 2010. Tragic events in Japan and Easter falling in late April have impacted the company's overall March sales. Gap is anticipating a loss of 4 cents per share in the first quarter of fiscal 2011 due to disastrous natural calamity in Japan. The company now estimates earnings below 44 cents per share in the first quarter of 2011.
Further, in order to optimize its capital structure, Gap has entered into a new $ 500.0 million revolving credit facility maturing in 2016 with a syndicate of banks comprising BofA Merrill Lynch, Citigroup Global Markets and J.P. Morgan. The new credit facility will replace the existing $ 500.0 million revolving credit facility. Apart from this, the company will get a five-year term loan facility of $ 400.0 million.
In yet another event, Gap has issued public bond worth $ 1.25 billion with a coupon rate of 5.95% at an issue price of $ 99.65 per bond.
Prior to this, Gap reported an increase of 17.6% year over year in its fourth-quarter 2010 earnings of 60 cents per share, handily beating the Zacks Consensus Estimate of 57 cents a share.
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). With a reduction in disposable income and a cut in consumer discretionary spending resulting from the recent economic downturn, the company like all other retailers is under severe stress in order to maintain profitability.
Gap's shares maintain a Zacks #3 Rank, which translates into a short-term 'Hold' rating. Our long-term recommendation on the stock remains 'Neutral'.
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