Gap Inc (NYSE:GPS) recently reported its November sales results with 8% growth in revenues and a 2% rise in comparable store sales.  These figures look good considering that this year’s holiday season (November-December) isn’t going too well for U.S. retailers. A while back ShopperTrak predicted that the 2013 holiday season will see its weakest gains since 2009, and early sales trends have confirmed this forecast.
Backed by its ability to quickly turnaround the latest fashion trends, Gap Inc has been resilient in the face of industry weakness for some time now. We believe that with sustained strength on this front and introduction of appealing marketing campaigns and offers, the company is well-positioned for a good holiday season.
Our price estimate for Gap Inc. at $50 implies a premium of about 30% to the market price.
This Year’s Holiday Season Will Be Weak For U.S. Retailers
According to an early forecast by ShopperTrak, the holiday season this year will see its weakest gains since 2009, on account of cautious consumer spending, a shorter season, and a change in shopping trends. Retail sales in November and December are expected to rise by just 2.4% while they improved by 3% last year and 4% in 2011 and 2010 for the same period. Moreover, the store traffic is likely to fall by almost 1.4%. This is not a pleasing picture given that last year’s holiday season remained weak despite a 2.5% increase in store traffic. 
U.S. buyer sentiment is still weighed down by political economic issues, increasing healthcare costs, slow job growth, increased taxes and gasoline prices. According to a poll conducted by Reuters, about 27% of the consumers were planning to lower their spending on apparel this holiday season.  Moreover, the holiday season this year is shorter than the last year. Since there are only 25 days between Black Friday and Christmas as opposed to 31 days in 2012, it provides a smaller window to gain from holiday spending. So far, the holiday retail sales trends have been inline with ShopperTrak’s prediction. U.S. retail sales on Thanksgiving and Black Friday (two of the most important holidays) increased by just 2.3%. 
However, Gap Inc performed Better
While most apparel retailers were struggling to attract customers, Gap Inc’s November sales increased by a healthy 8%. The company has been among the few apparel retailers in the U.S. who have been able to attract customers amid the economic weakness. U.S. buyers have shown low brand loyalty as they have been readily shifting to competitors that provide latest fashion products at affordable prices. Possessing a vast and flexible supply chain that enables strong inventory management, Gap Inc has remained on top of changing fashion trends.
During the holiday season, the company launched a new marketing campaign “Make Love” featuring famous personalities such as Tony Bennett, Harry Belafonte, Alexandra and Philippe Cousteaus. This campaign ran on print, social, direct media as well as cinema plus, allowing Gap Inc to strengthen its connection with customers.  It even opened more than 700 Old Navy stores for more than 29 hours on Black Friday attracting customers with its “$1 million to one lucky shopper” offer.  Additionally, the retailer provided a seamless shopping experience across all the channels, which helped it in driving greater store traffic.  Since these efforts assisted Gap Inc’s growth in November, we believe that the company is well-positioned for the remaining holiday season as well.Notes:
- Gap Inc Reports November Sales, Gap Inc, Dec 5 2013 [↩] [↩]
- ShopperTrak Expects Holiday Sales Will Increase in 2013, ShopperTrak, Sept 17 2013 [↩]
- U.S. holiday sales expected to rise less than last year: ShopperTrak, Reuters, Sept 17 2013 [↩]
- U.S. Retail Holiday Sales Up 2.3%, Foot Traffic Declines, Bloomberg, Dec 1 2013 [↩]
- Give Love With Gap This Holiday Season, Gap Inc, Nov 18 2013 [↩]
- Old Navy’s “Overnight Millionaire” Sweepstakes Awards $1 million to one lucky shopper, Gap Inc, Nov 6 2013 [↩]