I'm in complete agreement with my colleague Seth Jayson, who recently expressed the idea that Gap's (NYSE:GPS) continued difficulties are getting kind of old. The much-discussed -- and apparently, still highly anticipated -- Gap turnaround is still nowhere to be seen, and I can't say I'm surprised.
Gap's August same-store sales dropped 7%, a much worse decrease than was expected (analysts had anticipated a 3.4% drop). That's compared to a year ago, when same-store sales fell 9%. Sales decreased 2% to $1.15 billion. The bright spot was Banana Republic, which reported comps in positive territory with a 2% rise (compared to a 6% slide last year). Old Navy and Gap were pretty pitiful, though, with 8% and 11% decreases, respectively. Another bright spot was that Gap said its merchandise margins were above last year's. However, that's still poor consolation since Gap's sluggish sales have been a long-standing problem.
It's a sad state of affairs when a month that's bolstered by back-to-school shopping can't help Gap out of its doldrums. Meanwhile, consider the much more impressive August same-store results from retailers like American Eagle Outfitters (NASDAQ:AEOS), Aeropostale (NYSE:ARO), and Abercrombie & Fitch (NYSE:ANF). I'm getting tired of hearing myself say it, but I think Gap's brand is really hurting these days.
Remember in June, when Gap outlined some new ideas? At the time, I felt pretty skeptical, and it seems that feeling was justified, given Gap's financial news from the last couple of months. It's going to take a lot more to get this retailer back on the right path with its customers, and it certainly doesn't seem to be getting any easier.
Gap's turnaround doesn't appear to be forthcoming, and yet there seem to be many investors who are still convinced it's coming sooner rather than later. For example, Gap's trading at a trailing P/E of 16, comparable to the multiples for many retailers that have been posting far stronger performance over the last year or so (for example, Abercrombie & Fitch). There's a pretty big logic disconnect that's been at work for some time when it comes to investing in Gap -- and I'd wager the worst isn't over yet.
Catch up on Gap with the following Foolish articles:
- Seth Jayson took a look at last quarter's earnings and decided Gap rhymes with something.
- Check out last quarter's numbers.
- Were Gap's new ideas new enough?
Gap has been recommended by both Motley Fool Inside Value and Motley Fool Stock Advisor . American Eagle is a Stock Advisor selection.
Alyce Lomax does not own shares of any of the companies mentioned.
