Gap: In Bad Company

Surprise, surprise: Gap (NYSE: GPS  ) reported disappointing same-store sales figures for October. That's nothing new for anyone who's been following this retail stock's track record for the past few years.

Gap said same-store sales for October dropped 7%, compared to a 5% decrease last October. Total sales for the month decreased 3%. Of all its retail concepts, Old Navy North America seemed to stumble the worst during the month -- its comps dropped 11%, compared to last year's 6% decrease.

If you're wondering how the third quarter is coming along, don't expect any shocking news. Gap's total sales are expected to be flat, at $3.86 billion, and comps will decrease 5% (last year they fell 7%). Gap expects earnings between $0.21 and $0.23 per share, including $0.01 in benefits from a tax rate adjustment. Gap achieved higher earnings in its third quarter last year; back then, Gap head Paul Pressler said the company's problems were fixable. That may be true, but at the time, I questioned whether they could be fixed anytime soon. (Gap's problems are nothing new -- its turnaround had a false start or two in 2004, but to its credit, it did repair its balance sheet.)

If you're looking for a silver lining, look to Gap's margins, which the company says are trending upward. However, it needs to get more people back into its stores -- and opening their wallets -- to make that matter.

Although I don't think Gap's got its act together just yet, its shareholders can take some solace in the fact that a lot of retailers had a tough October. It's less disturbing than the months in which Gap's comps have lagged, while other retailers excelled -- such as August, when companies like American Eagle Outfitters (Nasdaq: AEOS  ) , Aeropostale (NYSE: ARO  ) , and Abercrombie & Fitch (NYSE: ANF  ) left Gap in the dust.

In October, Abercrombie missed expectations, as did American Eagle, although American Eagle had a strong showing. Aeropostale, on the other hand, surpassed expectations. Other high-profile comps misses in October included Chico's (NYSE: CHS  ) and Ann Taylor (NYSE: ANN  ) .

Of course, being part of the crowd during a bad month for retail is small consolation when Gap's been floundering for so long. Some of us are getting tired of even talking about it.

Despite frumpy news month after month, Gap's share price has increased about 14% over the last year, even including today's decline. This isn't the first time I've mentioned the logic disconnect here. I know some investors continue to believe that Gap's turnaround is imminent, but I still think things could still get worse before they get better. Gap's brand has taken a real drubbing over the last couple years, and customers have found other retailers' fashions far more compelling. In my opinion, it's still not time to jump back into the Gap, especially with so little proof that things are getting better.

Get the goods on Gap with the following content from our Foolish archives:

Gap has been recommended by bothMotley Fool Stock AdvisorandMotley Fool Inside Value. American Eagle Outfitters is also aStock Advisorrecommendation.

Alyce Lomax does not own shares of any of the companies mentioned. She is currently ranked 2,062 out of 12,057 in CAPS.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 516969, ~/Articles/ArticleHandler.aspx, 9/22/2014 6:34:59 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement