Gap (GPS) Remains 2016 Story; Stifel Reaffirms at 'Buy' Following Q2 Sales Results

Stifel affirms Gap, Inc. (NYSE: GPS) with a Buy rating at $48 price target following Q2 sales results issued Thursday night.

Analyst Richard Jaffe noted that Gap's 1 percent comparable-store sales decrease for last month was in-line with the firm's estimates. The analyst continued, At Gap, the shortfall in sales was due to lack of product appeal, which will negatively impact margins in 2Q. In addition, the ongoing weak sales trend has contributed to further inventory build-up which, when coupled with the inventory back log created by the port slowdown, will likely contribute to further discounting to bring inventory in line for 3Q, eroding margin at Gap brand. Management indicated that they are on track to clear Spring inventory in advance of 3Q, likely resulting in greater merchandise margin pressure than we have previously modeled. We believe that inventory at Gap division will be particularly lean in 2H given the recent leadership changes at the division and management’s conservatism regarding the 2H merchandise assortment. In addition, foreign exchange continues to negatively impact total sales and we anticipate this pressure to continue.

Jaffe made the following estimate changes: Q2 EPS from $0.67 to $0.66 and Q4 EPS from $0.74 up to $.75.

Reaffirms Buy rating. Management’s investments in an omnichannel shopping experience and international stores provide visibility for continued growth as the rate of improvement of the core businesses slow. However, given the recent leadership changes and weakness at Gap brand, the investment has become more speculative and necessarily longer term, the analyst said.

For an analyst ratings summary and ratings history on Gap, Inc. click here. For more ratings news on Gap, Inc. click here.

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