Gap (GPS, Financial) released decent results for the second quarter. The company performed better than the first quarter, but also suffered weakness in the margin due to higher operating expenses. However, Gap thinks this is a short term worry, and is expecting better results in the future. Gap is seeing growing traction for its apparel even in a challenging retail environment. It is taking various initiatives to improve customer traffic in its stores. With the future looking bright, its expansion in potential markets such as India can be a bright spot. Let us find out if Gap is worth your dollars.
Quarterly results and beyond
In the recently reported second quarter, Gap had a soft start with flat sales. Its net sales were $1.23 billion which were flat as compared to last year’s same quarter sales. However, Gap posted impressive increase in the net income. Its net income increased to $332 million. On the earnings front, Gap posted EPS of $0.75 as compared $0.64 per share in the same quarter last year.
Gap is moving steadily. The apparel retailer had a soft start to the fiscal year. In the second quarter it did post small improvement as compared to the first quarter. The management on the other hand is pleased with the pace at which Gap is moving, as the company managed to be a bright spot in the soft retail market in the past. The company is focusing on revamping its sales and various initiatives to improve profitability.
Gaining momentum
Gap is encouraged with the positive momentum it is seeing with Old Navy. It is working on improving its performance across its portfolio of brands and expects to gain momentum in the second half of the fiscal 2015. Gap is focusing on China for the success of its Old Navy banner. It sees China as a potential market for the brand as it has seen some good improvements in the sales in the past. Gap has also opened about three stores in China which are also yielding good results. Being in line with its plans, Gap is going to end the fiscal year with 110 Gap stores in China.
Moreover, Gap is also positive about the performance of its Banana Republic brand, which is seeing good improvement in the reservations on a daily basis. Gap thinks that the success of this brand will be a competitive advantage for it over its peers. In addition, Gap is expecting better shopping trends in the second half of the year and thinks that these brands are really going to shine for it.
Gap is also working on improving the value proposition. It is carrying out different initiatives to improve customer loyalty to the brand. For this, the company is continually finding new ways to bring something creative in the market, beyond expectations that will attract customers, driving its sales high.
Gap is moving well with its marketing strategies. It is seeing good improvement in women's products. Gap has also launched its new marketing campaign called New Look. It is also expected to further attract more customers to its stores which will lead to good sales improvement in the coming days.
Moving on to Gap’s online business, the company relaunched Piperlime which is a small part of Gap’s vast portfolio. Gap is pleased with the relaunch of Piperlime and it thinks that it will be a key point for a lot of innovative ways to present its online business to the customers.
On the international front, Gap is seeing declines in the franchised stores in countries such as Russia, Ukraine and Israel, though it is seeing meaningful improvement in other markets such as Brazil, Mexico, UAE with the strong growth midway through this year.
Gap is also entering the Indian market under Arvind Ltd. India is an emerging, vibrant market with lot of opportunities. In this course, Gap unveiled its plans to enter India through franchise-operated Gap-brand stores next year. Considering the fact that most of the population in India is around 25, Gap is expecting good traction for its apparels among the youths in the Indian market which will add value to its global expansion strategy.
Conclusion
Gap continues to grow at a decent speed, and is cheap with a trailing P/E of 15.49. Earnings are showing positive growth with a forward P/E of 12.57. The traction that Gap is seeing for its apparel under Old Navy and Banana Republic is expected to strengthen its position further in the future. The entry into the highly potential markets such as India will also be a cherry on the cake. Considering all such facts, Gap is definitely worth your money.
