Second-quarter net income increased 50.7% to $229 million, or $0.32 per share. (This beat Wall Street's expectations by a penny.) Sales, however, weren't nearly as impressive, decreasing about 5% to $3.50 billion, and same-store sales fell by a substantial 10%.
The retailer touted inventory management and successfully pushed higher-margin merchandise out the door. However, I still can't see any reason to be too terribly excited about Gap when sales continue to fall. Furthermore, not one of its concepts increased same-store sales during the quarter; Banana Republic's usually a bright spot, but its comps fell 6%, and long suffering Old Navy's comps plunged by 16%.
Last summer, when new CEO Glenn Murphy was hired, I admitted there was some reason for cautious (very cautious) optimism, but the new hire certainly wasn't any guarantee of a home run. I also said I would watch with interest for any sign of revitalization in Gap's beleaguered brands. Given the second-quarter comps data, I think the jury's still out on that element of the turnaround strategy -- and it's a key element. And of course, if Gap's fashion has floundered for a while, the tough economic environment makes turning things around even harder.
There are more compelling retail stocks out there. Gap's trading at 17 times trailing earnings and has a PEG ratio of 1.60. Compare that to American Eagle Outfitters
Or, you could simply pay up for quality and skip the beaten-down retail stocks altogether. Urban Outfitters
Pick your retail stocks carefully, folks. I continue to find Gap one of the least compelling specialty retail stocks out there; it might just burn your portfolio.