Can Gap Inc. (GPS) turns things around?
Written By TarikGap Inc. and its stock have hit a wall, but can the clothing retail giant pick up the pace again?
Things are not looking good for Gap, and I’ll give you three reasons why my analysis of Gap does not look pretty.
1. Gap has lots considerable amounts of market share to Limited Too, Aeropostale, and Abercrombie and Fitch. Remember all those fall into the Gap commercials of the 90’s? Well you have not seen much anymore because Gap lost its competitive edge. These three competitors are growing fast, and Gap has not made much of an effort to retain customers and fight back.
2. Gap looks very unfocused and may need a CEO change. Their latest sales gimmick, Piperlime.com, offers free standard delivery and returns on all shoe products. I thought Gap was losing customers in retail clothing market, so where did this shoe idea come from? It is not a necessary move because Zappo has already entered the market. Besides with 60-day guarantees, do not be surprised if customers buy shoes, wear them a few weeks, and send them back. Nope, sure would not surprise me at all.
3. Although I applaud the hiring of Dawn Robertson as new CEO of Old Navy, Gap has yet to deal with Banana Republic. J Crew is slaughtering Gap’s comparable brand quarter after quarter, and management does not look disturbed by the bloodbath. But who knows? Piperlime.com May become a hit. I did some research on Piperlime at Alexa.com traffic rankings and found that Piperlime reaches 200 million viewers, placing it just above the top 5,000 sites on the web. Not bad for a site that launched just a couple of months ago. We cannot determine yet if customers are making purchases, but they’re definitely shopping in the web store.
Do you own shares of GPS? Share your thoughts below.
If you enjoyed this article, Click Here to Subscribe to Our Free Global Investing Newsletter
Post/Read Comments
October 30th, 2006 at 6:05 am
[…] TJP presents Can Gap Inc. (GPS) turns things around? posted at Investor Trip. TJP gives 3 reasons GPS may not be doing well. […]
November 8th, 2006 at 7:33 pm
Can Gap Inc. (GPS) turns things around?…
Gap Inc. comparable store sales growth has fallen again, and direct competition in the casual apparrel industry is gaining large market share. Will Gap turn things around?
…
November 8th, 2006 at 8:03 pm
Great analysis TJP. I picked up this post from ValueInvestingNews.com.
I definitely agree with your view on future sales. Since 2002, they have had single digit revenue growth, with actually negative growth of -1.5% from 2005 to 2006.
However, GPS is still in solid financial condition. With a current ratio of almost 2.5 and free cash flow/sales hovering around 7-8% in the past few years.
Gap was one of the first modern fashion icons, so I don’t anticipate them going silently into the night.
Morningstar had this to say..
Gap’s GPS second-quarter results were weak, and management reduced its full-year estimates, but given the improved store formats and what we think is a fresher merchandise selection flowing into the Gap stores, we are still hopeful that this company can execute its long-awaited turnaround[…]If we don’t see some improvements in the performance of the company’s namesake chain by the end of the holiday season, we’d be likely to cut our fair value estimate.
Given that the company reports same-store sales results on a monthly basis, it was no surprise that revenue was flat year over year. Nor was it a surprise that the gross margin fell 440 basis points, and that store costs (which included a significant number of renovations) rose. We were mildly surprised at the magnitude of management’s cut in its guidance for free cash flows and earnings, but much of this has to do with ongoing reinvestments in the Gap stores, which are getting a new look to go along with the (we hope) improved merchandise that has begun hitting the stores. However, we think management is taking a more cautious tone toward the second half of the year than it had, and while we think it is genuinely confident about the merchandise, it could take longer for store traffic to pick up after a couple of years of lackluster products.
We’re pleased that the company continues to repurchase shares at what we think are significantly undervalued levels, and that the board authorized another $750 million in repurchases earlier in the month. The company continues to generate large amounts of cash, and we think it can continue to pay a dividend, repurchase shares, and invest in the store base.
November 19th, 2006 at 7:23 am
Gap just posted another awful quarter. They’re still working on their redesign plan to hopefully boost sales for the 4th quarter. But it looks like this will be a more difficult task than expected.
February 11th, 2007 at 1:04 pm
[…] When I reviewed The Gap Inc. (GPS) back in October, I was extremely disappointed with comparable same store sales numbers, the key metric for store retailers. CEO Paul Pressler made promises to shareholders that he failed to keep. As a shareholder, I’m fed up with unfulfilled promises and paltry sales numbers. […]
March 2nd, 2007 at 3:50 pm
[…] isn’t news but what might be news to a lot of people is, who wants to turn Gap Inc. company around? A competitor? American Eagle and Abercrombie both have much better strategies and would drag their […]
May 11th, 2007 at 7:49 pm
[…] Gap Inc. (GPS) […]
April 11th, 2008 at 12:58 am
Hey guys! You know what I think? I think that all written here is bullshit, real lie. They are making us believe it’s true, they are trying to express it like it was in reality. Don’t believe it if you are not insane! There’s nothing special in this site, they just express regular news with unusual words. They can make something shocking out of anything! Don’t trust them!