Stifel Says Strength in Old Navy Not Enough to Offset Other Weakness at Gap (GPS); Affirms at 'Hold'
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Stifel affirms its Hold rating on Gap (NYSE: GPS) following the retailer's Q2 report late Thursday.
Analyst Richard Jaffe noted that Gap's EPS of $0.60 came in 1 cent above its recent outlook of $0.58 - $0.59.
Jaffe also offered the following commentary:
Gap fell short in 2Q with negative comp sales and flat margins versus an easy comparison in the prior year. Efforts to reinvigorate the Gap and Banana Republic brands continue to prove unsuccessful. However, there are bright spots at GPS. Operationally, they continue to demonstrate their expertise in managing the business. Inventory was down 3% y/y, expenses were up a modest 0.5% despite rising wage costs, cash flow was strongly positive and up significantly y/y. Additionally, management continues its restructuring efforts with store closings at the Gap, Old Navy Japan and unprofitable Banana Republic international stores. Old Navy (represents over 40% of sales) struggled in 1Q as it appeared to lose its fashion and marketing direction, but quickly regained its footing with a strong marketing effort, compelling product and very solid results during 2Q.
The Gap’s restructuring efforts and its long-standing product operating model have not yet had any meaningful traction. Rather they appear to be a distraction from the simple, underlying issue at Gap. It needs to provide consumers with a store full of stuff they want; attractive merchandise. And that seemingly simple mission has proven remarkably elusive through a variety of merchandising efforts and despite management’s observation of “many points of validation”.
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