Did you Already Write Off Gap? Think Again...

Yashu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

August has been particularly good for retailers. The U.S retail data for July, which was reported in August, came seemingly better with a rise of 0.8 percent after a fall since many months. The data along with the results of the various retailers shows how retailers are winning over their shoppers and crafting a turnaround for themselves.

What? : Corporate profits for GAP Inc. (NYSE: GPS), which came as a surprise to the markets, rose 29% in the latest quarter. The San Francisco based retailer has struggled and slumped for years to reclaim its fashion status. In October last year, the retailer had been closing its retail outlets in the US along with executing its expansion plans in China. So, investors were quite uncertain about where the company was heading. But now, with the given result, it seems that the retailer has made a stylish turnaround! The retailer’s stock has doubled itself from the beginning of the year.

So what? :  The company reported its earnings per share of $0.49 which means to be 40 percent over last year's same quarter earnings.

GAP also has raised guidance for year 2012 earnings per share to be in the range of $1.95 to $2.00, compared with $1.56 in the fiscal year 2011. Another key take away from the results of the company was the increase in its operating expenses. The company has been busy making marketing expenses and continues to invest in its business. This quarter particularly, the company had focused on key categories like jeans at GAP and suits at Banana Republic. A company looking to keep itself busy and work things out for itself is always a bright sign for investors.

Now what? : All said and done, there is a still lot that needs to be done for GAP. Overall the company had a 6% increase in its revenues, but a look deeper into the results would reveal that there was a decline in 5% for the international sales segment. If GAP looks out for the future, it needs to make its international presence felt. Research, revamping and re-designing, the company needs to do it all to mend its fall in revenue from its international stores.

What about the competitors?

While GAP has been doing well, other retailers have also been seen cashing on the recent confidence of shoppers. Hilbbet Sports Inc. (NASDAQ: HIBB), a sporting goods retailer, achieved its 11th consecutive quarter of comparative store sales increases. Although its revenue missed the expectations by analysts, it didn’t stop Hibbet Sports to raise its EPS guidance for the fiscal year 2012.  What’s particularly working for the company is its strategy of bringing premium branded products to new markets.

Some retailers also seemed to struggle this quarter. There was a contrast in the earnings of Aeropostale Inc. (NYSE: ARO), compared to GAP. Aeropostale has posted a 98 percent decline in profits and has casted a weaker outlook for the current quarter, citing a soft start to the key back-to-school earning season.

 

The Road Ahead...

GAP has been making tactical moves by reallocating its resources which increases its overall efficiency. By shutting down not so profitable outlets and opening new ones, the company is focused on realizing its business requirements. Undoubtedly it has been a promising quarter for the company. Now, all it needs is to look into the bits and pieces of the things that went wrong, revive its strategies and come back even stronger next quarter. It needs to find ways and reasons as to why their old customers should stick to them and why the new ones should join.  The company’s move to liven up its fashion with brightly colored jeans and tops has helped it excite shoppers this quarter.  With the stock price hitting an all time high and a turnaround in revenue, GAP seems an interesting stock to watch in the coming days.

 


yashup has no positions in the stocks mentioned above. The Motley Fool owns shares of Aeropostale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

blog comments powered by Disqus

Compare Brokers

Fool Disclosure