Apparel Week In Review: Gap Inc Reports Monthly Results And Urban Outfitters Discloses An M-Commerce Contract

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The past week was relatively uneventful for the U.S. apparel industry, except that Gap Inc (NYSE:GPS) reported its September sales results, which once again turned out to be disappointing. The lack of fashion variety comparable to fast-fashion brands, relatively slow moving inventory and expensive price points have been a drag on the retailer’s premium brands for a while now. And the appreciating dollar has not helped the company’s international operations. On the other hand, Urban Outfitters (NASDAQ:URBN) continued to build on its e-commerce and omni-channel goals as Slyce Inc. announced its contract with the retailer to provide visual mobile search technology. Here is a quick roundup of the past week’s news that mattered for these companies.

See our complete analysis for Gap Inc

See our complete analysis for Urban Outfitters

Gap Inc Reports September Sales Results

Gap Inc recently reported sales results for the month of September, which ended on October 3 on its retail calendar. The retailer’s net sales declined 1% to $1.46 billion, driven by exchange rate fluctuations and 1% decline in comparable sales. Since Gap Inc earns close to 25% of its revenues from outside the U.S., the strengthening dollar has been a drag on its growth. However, its premium brand weakness has been more responsible for its lackluster results. Even during September, Banana Republic’s comparable sales were down 10% year-over-year and Gap’s growth was flat. [1]

Although Gap Inc was finally able to curb the decline in its mainline brand’s comparable sales, there is still scope for significant improvement. We have pointed out in our previous articles that the company’s premium brands are just not moving fast enough in an environment where speed is the difference between winning and losing. However, with several revival strategies aimed at improving design and speed-to-market underway, Gap Inc expects to see a visible difference next year.

Our price estimate for Gap Inc at $43, implies a significant premium to the current market price. We expect revenues of $16.48 billion for the company in fiscal 2015, with earnings per share at $2.59, which is slightly below the consensus range of $2.84-$2.64.

Urban Outfitters’ Contract With Slyce Inc.

A few days back, Toronto-based Slyce Inc., a provider of a visual product search platform, announced that it has signed a contract with Urban Outfitters for improving the latter’s mobile-commerce. As per the contract, Slyce will support visual search for the retailer’s mobile platform. Slyce’s visual search technology allows consumers to search products in a particular retailer’s inventory by just taking photographs of merchandise they like. This technology provides an instant product recognition capability, which makes it an important tool for any retailer’s m-commerce platform. [2]

The Slyce contract is inline with Urban Outfitters’ plans to become a strong omni-channel player in the U.S. market. The company has been deploying several initiatives centered on website optimization, check out, search, personalization and mobile app enhancements. It is also expanding its store base gradually in order to have an optimum presence in the country necessary for omni-channel retailing. We believe that the effective implementation of such strategies will gradually take Urban Outfitters towards its goals, making it one of the stronger players in the omni-channel domain in the future.

Our price estimate for Urban Outfitters at $38, implies a 30% premium to the current market price. We expect revenues of $3.59 billion for the company in fiscal 2016 (calendar 2015), with earnings per share at $1.82, which is within the consensus range of $2.09-$1.82.

Relevant Articles
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  2. Gap Q2 Earnings: What Are We Watching?
  3. Gap Stock Has Upside Potential To Its Pre-Inflation Peak
  4. Gap’s Stock Looks Expensive At $14
  5. Will Gap Stock Trade Lower Post Q3 Results?
  6. Gap’s Q2 Earnings Preview: What Are We Watching?

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Notes:
  1. Gap Inc Reports September Sales Results, Gap Inc, Oct 8 2015 []
  2. Slyce Inc. Contracts with Urban Outfitters to Provide Mobile Visual Search Technology, Market Watch, Oct 6 2015 []