This article is part of our Rising Star Portfolio series.
Sometimes it's difficult to imagine that beleaguered retailer Gap (NYSE: GPS ) has anything in its favor. After years of malaise, Gap still has at least one heartening factor in its favor -- but that may not make the retail stock worth our while.
In my search for socially responsible companies for my Rising Star portfolio, I recently noted Gap's spot on Ethisphere's "World's Most Ethical Companies" list for 2011. The clothier joins the likes of Whole Foods Market (Nasdaq: WFM ) (which I purchased for the portfolio in May), Best Buy (NYSE: BBY ) , and Target (NYSE: TGT ) . Ethisphere applauded all its honorees for ethical leadership in their industries, reflecting the organization's credo: "Good. Smart. Business. Profit."
Gap dedicates a good portion of its website real estate to its efforts in corporate social responsibility. Among other efforts:
- 100% of Gap branded denim complies with a Water Quality Program to ensure that wastewater is treated before discharge into the environment
- The company has committed to reduce absolute greenhouse gas emissions by 20% in 2015 (from 2008 levels).
- Gap's Personal Advancement and Career Enhancement Program (P.A.C.E.) trains participants in work and life skills. Some 5,000 female workers from six countries have taken part in the training
Retailers and consumer-facing brands haven't always had the best reputation when it comes to social responsibility. Shareholder advocacy organization As You Sow released its "Toward a Safe, Just Workplace Report" last year, grading companies on how well they avoided sweatshops and other human rights abuses within their supply chains.
The report included a scorecard with survey results pertaining to retailers' social labor practices throughout those supply chains. Gap scored a B. Only Levi-Strauss and Wal-Mart (NYSE: WMT ) scored higher, with B grades. VF (NYSE: VFC ) , which recently purchased uber-socially responsible Timberland, got the lowest grade of the respondents, C-. (Note that 18 companies did not respond to the survey.)
Gap also made a positive impression by landing the highest score (B-) in Management Accountability for social compliance. That's highly impressive, because the average score there was a dreadful D.
Given Gap's other problems, it's nice that the company receives props for good corporate citizenship. Does its single-digit price-to-earnings ratio also earn it a place in this portfolio?
Sadly, Gap's positive spin on corporate citizenship simply doesn't outweigh the fact that it hasn't been able to institute a real business turnaround. Its unimpressive revenues and sad same-store sales figures for years running tell me it's still fumbling.
Gap's worth watching, but not buying. Although my Rising Star portfolio is all about positive corporate behavior, I also want exemplary companies that will yield positive returns. If and when Gap gets its competitive groove back, it could find itself back in the running.