The Gap Inc.’s (NYSE:GPS) strategy of growing international and online sales continues, with new stores opening in China, Poland and Russia in recent months. The company’s bet on strong sales in this area comes against the backdrop of consistently weak sales overseas for the past year. China in particular contributes a substantial amount to international sales of retailers such as Nike (NYSE:NKE), Ralph Lauren (NYSE:RL) and Coach (NYSE:COH). Additionally some struggling retailers like Gap Inc. (NYSE:GPS), Aeropostale (NYSE:ARO) are trying to increase their international operations to offset their decline in the domestic market.
Gap Has Struggled with Slumping Sales
Gap’s stock has been volatile recently as the company is dealing with weak sales on the domestic front and in international markets that is weighing on the stock.
A look at Gap’s comparable sales reports over the past few years shows an interesting trend. Last year, international sales were strong, but this year they have been down. In the 2011 fiscal year same store international sales have declined every month, except for the month of June.
Gap will be reporting its October sales on November 3rd, and it will give investors insight into whether the slump in sales is continuing for Gap Inc. If it continues to show weakness in international sales, then it will not quell investors’ fears that its strategy for international growth will help the stock in the near term.
If October sales are similar to September comparable store sales, then it will be a disappointment. September’s sales were negative 13 percent this year versus positive 4 percent for the previous year in the international market. August international sales were also disappointing—negative 9 percent this year versus positive 5 percent last year.
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The company is forging ahead with its goal of growing its franchise base internationally to 400 by 2014. While that may help GPS in the longer term, the continuing weak sales and higher cotton prices this year have hurt this year’s results.
Now that cotton prices are lower, that will bode well for the company. Management knows full well the extent of the company’s malaise. As CFO Sabrina Williams said at the annual investor meeting in mid-October, “Management is disappointed in our 2011 financial performance.” Indeed, Glenn K. Murphy, chairman and CEO, also admitted at that meeting that he “allowed the cotton crisis to become a distraction inside the business. That’s my fault.”
But fault aside, the company seems committed to its new global strategy. And getting its brands into new stores overseas may just be the jumpstart Gap needed this year. Keep an eye on comparable store sales, especially international sales, to see if GPS will make a rebound.
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