By Carly Forster
The Gap Inc. (NYSE:GPS) is a San Francisco, CA based American multinational clothing and accessories retailer with six separate store brands, including: the Gap, Banana Republic, Old Navy, Piperlime, Athleta, and INTERMIX. The company released its second quarter earnings report on Thursday, August 21st, giving reason for investors to be pleased. The retail giant also revealed its plans to open 40 stores in India with its local partner, Arvind Lifestyle Brand Limited, an Indian textile company.
During its Q2 results, The Gap Inc. (NYSE:GPS) reported $0.75 Non-GAAP earnings per share, including $0.05 Gain on Asset Sale, beating analysts’ consensus estimate of $0.69 by $0.06. During the same quarter last year, the company posted $0.64 earnings per share. The Gap had revenue of $3.98 billion for the quarter, compared to the consensus estimate of $3.97 billion. The retail giant’s quarterly revenue was up 2.9% on a year-over-year basis. On average, analysts predict that The Gap will post $2.96 earnings per share for the current fiscal year.
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Glenn Murphy, chairman and chief executive officer of Gap, Inc. said of the results, “Building on last year’s strong performance, we are pleased to have grown our sales three percent and delivered solid improvement in earnings per share. We remain focused on our strategic initiatives, as we turn our focus toward delivering a strong second half.” Along with its second quarter results, the company announced it was planning on opening 40 new stores in India. The Gap’s thought is to bring American casual style to Asia, targeting the continents third largest economy. The company is partnering with Arvind Lifestyle Brand Limited to start opening Gap stores starting next year. The first two stores will be opened in India’s most popular cities, Mumbai and Delhi, in May 2015.
Shares of the Gap opened at $44.32 on Friday, August 22nd. The retail giant has a 1-year high of $45.66 and a 1-year low of $36.13. The stock’s daily moving average is $44.98 and has a 50-day moving average of $40.93. The market cap for the Gap is $19.94 billion and its P/E ratio is 17.39.
On August 22nd, Janney Capital Markets analyst Adrienne Tennant upgraded her rating for the Gap from Neutral to Buy with a $51 price target. She reasoned, “We believe there are near-,mid-, and long-term opportunities for The Gap Inc. (NYSE:GPS). In the near-term, we look for margin support from inventory balance, as well as ongoing positive strength at the Old Navy division. In the medium-term, we look for margin enhancement from supply chain and operational initiatives, as well potential cotton deflation tailwind in spring/summer 2015. In the long-term, we look for unit growth from emerging brands such as Athleta and growing the global footprint. With a commitment to share repurchase activity, strong free cash flow, and growth opportunities, we believe Gap is a solid investment at current levels. While we had been cautious on Gap division merchandise missteps in spring, we believe Old Navy’s momentum can offset this weakness.” Tennant has a +6.0% average return on all stocks she has rated and a 50% success rate in making recommendations. She has also rated the Gap 17 times, helping her earn a +11.8% average return on the stock.
Separately on August 22nd, Wedbush analyst Morry Brown maintained a Neutral rating for the Gap, but raised his price target from $44 to $45. He noted, “Since initiating coverage of The Gap Inc. (NYSE:GPS) on June 4, we have held a positive bias towards the company’s long-term fundamental, but our view has been held back by near-term comp and margin challenges at Gap brand. Gap’s plan for a sales turnaround in 3Q (following only two poor top-line quarters) is certainly quick by most retail standards. We have hesitated to embrace the turnaround story in advance, given the risk inherent with merchandise execution and the potential for the timing of improvement to get pushed back to 4Q (or beyond).” Brown has a -7.1% average return on all stocks he has rated and a 25% success rate in making recommendations.
While both of these analysts agree that the Gap should be in their portfolios, one see’s more opportunity for high returns than the other. Whose recommendation do you trust?
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Carly Forster writes about stock market news. She can be reached at [email protected]