Gap Results Highlight International Growth, Sluggish Domestic Sales
Gap (NYSE:GPS) is a global specialty retailer that operates the Gap and Old Navy brands, and competes with retailers such as Aeropostale (NYSE:ARO), American Eagle (NYSE:AEO), Abercrombie & Fitch (NYSE:ANF) and Urban Outfitters (NYSE:URBN). We estimate that Gap and Old Navy stores each constitute roughly 27% and 26% of our $35.51 our price estimate for Gap’s stock, which is around 50% above the market price. Banana Republic stores add an additional 17%, while Internet orders & franchise business constitute 22%.
Results Paint Mixed Picture
Gap reported fourth quarter and full year results earlier this week. The company’s fourth quarter net sales increased by nearly 3% to $4.36 billion, compared to the same quarter the previous year. The YoY comparable store sales for Gap in North America were down 2% while those for Old Navy and Banana Republic were up 1%. The Internet sales were up 23%.
For the full fiscal 2010, net sales increased by just over 3% to $14.66 billion. Comparable store sales for Gap in North America decreased by 1% while those for Old Navy and Banana Republic increased by 2% and 3% respectively. The net company comparable store sales increased by 1% and Internet sales increased by 16%. [1]
The company did well on Black Friday, but its sales were impacted towards the end of the holiday season due to bad weather. The company has also been doing well on the international front. Looking ahead, Gap will need to balance its international growth plans with improving sales in its domestic stores.
International Expansion
International sales constituted 22% of total sales in 2010, a two percentage point increase from the previous year. This has largely resulted from the company opening stores in lucrative markets like China and Europe and introducing international shipping to many countries for online orders.
Going forward, the company is planning to open 190 stores, of which 125 will be at international locations. Going forward, the company believes that its profit margins may go down due to surging commodity prices, in addition to competition among clothing retailers intensifying as they will be vying to regain market share as consumer spending picks. ((Gap 4Q Profit Up 3.7%, EPS Better Than Seen; Outlook Weak)) [2] [3]
Notes: