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Is Gap starting to exit the woods? Analysts cheer stock gain on small October sales drop

By Angela Gonzalez-Rodriguez

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Business |ANALYSIS

A smaller-than-expected drop in the sales during the month of October sent Gap’s stock into a share price rally. In fact, this is the second month in a row that parent group to eponymous brand Gap, Banana Republic and Old Navy posts encouraging results.

After releasing its monthly sales update on Monday, The Gap, Inc. (NYSE:GPS) tinted gains of over 3.50 percent to 30.1 dollars apiece, reported by the ‘Financial Times’. The stock’s earnings per share (EPS) ratio determined by looking at last 12 month figures is 1.77. The US apparel group currently has a market cap of 11.5 billion dollars.

Actually, highlight market sources consulted by FashionUnited, the company’s earnings per share has been growing at a 3.5 percent rate over the past 5 year. The average revenue increase was in the region of 1.5 percent.

On the back of the monthly sales for October – which came in higher than expected, despite the 1 percent drop in absolute terms – the market starts to recover its faith on the fashion group.

A small drop in sales can also be good news – Gap’s share price rallies

Gap Analysts following the stock point out that, many times, a small drop is also good news. A good sample of this is Gap Inc‘s share price rallied since the company reported its October sales and its earnings guidance for the third quarter.

The company reported a 1 percent drop in same-store sales for October, citing a negative impact of three percentage points from the August fire in one of its distribution centres. “What is encouraging for the investors is that the fall in comps is primarily caused by the fire, and if that event had not occurred, the company would have reported a positive 2 percent growth in same-store sales,” explain market sources quoted by the ‘Wellesley News’.

Meanwhile, third quarter sales fell slightly to 3.8 billion dollars from 3.86 billion dollars in the previous year. The company issued an EPS guidance of 0.59-0.60 dollars, surpassing consensus analyst estimate of 0.53 dollars.

There are signs the company may finally be on the road to recovery, with promising results posted in the month, advances ‘Forbes’, recalling that this is also the second month in a row when the company has reported encouraging results. “In September, Gap had stated its comparable sales fell 3 percent; however, if the negative impact of the fire, which occurred in a building on its Fishkill, New York distribution center campus, is excluded, it would have resulted in a flat performance. Old Navy has continued with its streak of positive comps, with 3 percent reported in October. Once this figure is adjusted for the fire impact, it would translate to a 4 percent growth in same-store sales,” concludes the financial publication.

In retrospective, “The Gap, Inc.’s (GPS) made a return of 13.80 percent in one month through last close, displaying a 20.98 percent return during the past three months,” according to ‘Street Updates’. The share price is now at 77.43 percent for the past six months.

In the past month, 22 analysts rated the shares of company as a “Hold”, two analysts set a “Buy Signal” for the stock and another two recommended selling the stock.

Photo:Gap.com

Banana Republic
Gap
Old Navy