Stifel is trimming estimates on Gap, Inc. (NYSE: GPS) following July and Q2 sales results issued Monday night.

Analyst Richard Jaffe noted that comparable-store sales decline of 2 percent at Gap in July stemmed largely from weakness at Gap and Banana Republic.

Jaffe commented, Management indicated that the sales weakness was in part due to tax-free holidays in several states which shifted from July last year to August this year as Labor Day falls later this year. 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 in order to bring inventory in line for 3Q, eroding margin at Gap brand. However, we believe the company is on track to clear Spring/Summer inventory in advance of 3Q. We anticipate 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 is lowering Stifel's Q2, FY15, and FY15 EPS estimates from $0.66, $2.72, and $3.10 down to $0.64, $2.72, and $3.05, respectively.

Stifel rates Gap at Buy with a price target of $48.

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