Gap (GPS) April Sales Could See Upside on Holiday Shift; Stifel Maintains 'Buy' Rating
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Stifel maintains its Buy rating and $48 target price on Gap, Inc. (NYSE: GPS) following March sales results issued Thursday night. The retailer reported net sales of $1.51 billion for the five-week period ended April 5, 2014, and comparable sales for March 2014 were down 6 percent versus a 1 percent decrease last year.
Analyst Richard Jaffe was looking for a 4 percent drop in comps for March, while the Street consensus was calling fora 3.3 percent dip. The analyst said,
we anticipate that April sales will benefit from the Easter shift with comp sales improving 2-3%. Management indicated that gross margins in 1Q will be below the prior year by more than the y/y decline in 4Q:13 (greater than a 280 bps decline). This is due to the severe storms that resulted in many store closures in February, which pressured sales and contributed to the already elevated inventory levels entering 1Q (significantly above sales growth and LY). The margin erosion suggests that management is taking aggressive steps to drive sales and bring inventories down. On a positive note, the company indicated it is tightly managing expenses and anticipates expense growth to be flat y/y in 1Q and inventory to be flat y/y by the end of 2Q.
Jaffe sees better inventory management happening in back-half 2014 due to Gap's supply chain initiatives.
We also anticipate an improvement in traffic when better weather arrives. SG&A levels will likely continue to be tightly managed. We would be buyers of shares in weakness. The company’s continued focus on improving their sourcing efforts, enhancing the omnichannel shopping experience and offering trend-right assortment is anticipated to drive comp gains long term, Jaffe said.
Shares of Gap, Inc. closed at $39.29 yesterday.
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