Retail

Solid Gap Sales Meet Valuation & Share Performance (GPS)

Jon Ogg
Gap Inc. (NYSE: GPS) on the surface looked really good today and you might think that the new colors might be creating more permanent interest.  The company reported that its March same-store sales were up 8% in March.  A year ago the company turned in a -10% drop in same-store sales, so this moves closer to a ‘back to even’ report in the company’s long-term turnaround.

The headline of 8% same-store sales growth should have piqued interest from investors if you just read the headlines.  The problem is that Gap shares have risen to above $26.50 after closing out 2011 at $18.46.  Yep, that is a gain of more than 40% against a near-12% gain in the S&P over the first quarter and that is not normal.

Gap has been plagued by years of disappointing sales and today may be a relief news headline on the surface.  The breakdown in comparable store sales showed that Gap was up 9% in North America (versus -9% year ago), Banana Republic was up 5% in North America (versus -8% year ago), and Old Navy was up 11% in North America (versus -12% year ago).  International same-store sales rose 2% from a -9% reading a year ago.

RetailMetrics already told us earlier this week that the Gap was getting higher sales revisions. Thomson Reuters has a target of $1.84 EPS for Gap’s current fiscal year and that translates to 14.4-times expected earnings.  That is not really expensive, but it is no longer cheap when you consider a gain of more than 40% in the shares over the last quarter.

Gap shares are still considered a turnaround but investors need to know that the current share price is actually higher than it has been over any point in over ten years on a dividend-adjusted price basis.  Its market cap is back up to $13 billion as well.

The headline news looked great, but investors are likely to demand more months and quarters of outperformance against peers before they are willing to massively commit to a bet that Gap will go back and challenge its highs from over a decade ago.

Gap shares are down $0.06 at $26.59 and $26.59 is what is represented as the Thomson Reuters consensus price target as well.

JON C. OGG

Sponsored: Attention Savvy Investors: Speak to 3 Financial Experts – FREE

Ever wanted an extra set of eyes on an investment you’re considering? Now you can speak with up to 3 financial experts in your area for FREE. By simply clicking here you can begin to match with financial professionals who can help guide you through the financial decisions you’re making. And the best part? The first conversation with them is free.Click here to match with up to 3 financial pros who would be excited to help you make financial decisions.

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.