Specialty retailer Gap Inc.’s (NYSE:GPS) stock gained roughly 11% Thursday after the disclosure of January sales results.) Though Gap reported a January sales decline of 1% and a comp sales decline of 4% compared to previous year, the apparent reason behind the increase was Gap’s earnings guidance for Q4 of $0.41 – $0.42, which was well above market consensus of $0.35. For the complete quarter, Gap reported a decline of 1% in net sales and a decline of 4% in its comps, slightly better than its Q3 results of 2% decline in net sales and 5% decline in comps. Banana Republic was the bright spot for Gap in January, up 6% compared to 5% last year. We expect the increase in sales of Banana Republic to benefit Gap’s net margins for the quarter, as Banana Republic EBITDA margins are higher than those of Gap and Old Navy, two of the company’s most well known brands. Gap competes with other specialty retailers like Aeropostale (NYSE:ARO), American Eagle (NYSE:AEO), Abercrombie & Fitch(NYSE:ANF) and Urban Outfitters (NASDAQ:URBN).
We have a Trefis price estimate of $24.98 for Gap’s stock — a premium of around 15% to the current market price.