GPS: Comparable Same Stores Sales Improve, but Where is Gap Inc. Going?

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Despite -4% comparable same stores sales numbers during 1st quarter 2007, Gap Inc. shares remain fairly strong considering all the negative attention surrounding the company. I mentioned many of the Gap corporate changes previously, including the closing of Gap’s Forth & Towne segment, a clothing chain primarily for baby boomer women.

While little forward progress has been made to fully turn around the sluggish revenue numbers, Wall street remains optimistic about Gap’s foward looking potential. Interestingly enough, value investors can still acquire GPS shares in anticipation of a company turnaround.

Is Gap Inc. a prime value stock?

  • Enterprise Value/Revenue: 0.98 – Gap owns a bit of high tag real estate, along with Gap’s well known retail stores (Banana Republic, The Gap, and Old Navy)
  • $2.74 Billion Cash Position – Cash is king, and Gap Inc. carries plenty of it
  • Price/Book ratio: 2.98 – Not a bad price to book ratio for value investors. Abercrombie & Fitch, one of Gap’s toughest competitors, trades at a P/B of 4.66

Promising Improvement, but Where is The Gap Really Heading?

Looking towards the future, The Gap can only move forward in their quest to evolve their global brand name. Comparable same stores numbers improved from -9% in 1Q ’06 to -4% in 1Q ’07, signaling Gap management has put some water to the fire.

Another logical step for Gap Inc. is to find a permanent CEO whose experience includes rejuvenating sluggish sales numbers & enhancing existing store value.

The Gap brand is not dead; it’s asleep at the switch. However, where is the business really heading? The 80’s are gone forever, thus Gap must embrace the new generation of fashion conscious of teens & adults. Innovation is the key driver of business segment growth, but Gap Inc. wants to hide behind their 80’s image instead of moving with the times.

Holding Onto my GPS Shares

As much as I pondered selling my small stake, I will continue to hold GPS and may add to my position in the coming months. Gap’s 1.70% dividend yield buys some shares every quarter, and I’m not convinced The Gap brand has lost its mojo.

What do you think? Has Gap lost its consumer edge?

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