Gap Holds Its Own (GPS)

Gap Inc. (NYSE: GPS) is holding its own considering the past few years.  The apparel retail giant reported a slight gain in quarterly earnings, although this is on the heels of a 7% decline in revenue from a year ago.  The company is enjoying the same earnings yield as other retailers via costing cutting and expense management.

The retailer owning the Gap, Banana Republic, and Old Navy earned $228 million,or $0.33 EPS, versus $0.32 EPS a year ago.  Revenue was $3.25 billion, down from $3.5 billion a year ago.  Thomson Reuters had consensus at $0.32 EPS and $3.23 billion in revenues.

For the quarter,  same store sales were down by 8% after double-digit declines at the Gap and Banana Republic.  North American same store sales were down 10% at Gap and 15% at Banana Republic.  Gap Inc. had already gotten a jump on inventory cuts ahead of the recession and competitors and it seems to be winning from it.  The company even noted that inventory was down 14% from a year ago.

This will be hard to say without a cringe because things had been so bad for so long at the Old Navy brand that we thought the company might need to jettison the brand.  We even dubbed it “Old Lamey.”  But the unit went back to its roots to target the cost-conscious mothers and kids after its attempt to beupscale was a dud.  Old Navy’s same-store sales were down ‘only’ by 4% from a year ago.  That is actually better than most retailers in the recession and it is after what felt like years of double-digit declines that also felt like a race to zero.

Gap closed up 1.3% at $18.85 today and its 52-week range is $9.41 to $20.80; the after-hours reaction has shares trading up around $19.00.  This might not seem like a huge win, but it is incrementally better than what we are seeing at most retailers.

JON C. OGG
AUGUST 20, 2009