The sell-side parsed Gap Inc. (NYSE: GPS)’s business plan for the fourth quarter after the retailer announced hundreds of imminent store closings alongside its third-quarter
print this week.
The Analysts
- Jefferies analyst Randal J. Konik reiterated a Buy rating and $50 price target.
- KeyBanc Capital Markets analyst Edward Yruma downgraded Gap from Overweight
to Sector Weight.
Positives
In announcing the closing of more than 700 underperforming stores, Jefferies' Konik said in a Wednesday note that
Gap “ripped off the Band-Aid.”
The store closures should eliminate "significant" losses, elevate the brand and allow the company to focus on high performers,
the analyst said.
Despite fabrication issues, Old Navy remains strong and is showing share gains and significant traffic, Konik said.
KeyBanc's Yruma said Tuesday that both Old Navy and Athleta are often underappreciated within the company.
“95 percent of the Athleta business comped positively in 3Q, and the brand continues to see solid growth in its customer
file. Within active, GPS launched a new brand in October called Hill City as it looks to grow in men’s active.”
Negatives
Overall, the Gap brand performed underwhelmingly, said Jefferies' Konik.
“Gap brand's comp fell short; however, as GPS undergoes fleet rationalization, this should improve substantially.”
Assortment struggles affected the data for this quarter, accounting for a loss of 7 percent, said KeyBanc's
Yruma.
“More importantly, GPS management signaled an openness to taking more drastic steps to cull the Gap specialty store fleet,
citing that the bottom half of the fleet is a $100-million EBIT drag. Costly flagships could also be rationalized in an effort
to improve profitability."
Twenty percent of Gap's sales are online, meaning that fleet rationalization "can be done in a brand-accretive manner," the
analyst said.
Price Action
Gap shares were up 0.7 percent at $25.99 at the time of publication Friday.
Related Links:
Gap Shares Drop Despite Q2 Beat; The Sell-Side Weighs In
Gap
Is One Of 2018's 'Most Compelling Specialty Retail Ideas,' Says Bluefin Research Partners
Photo by Nick-D/Wikimedia.
Latest Ratings for GPS
Date |
Firm |
Action |
From |
To |
Nov 2018 |
Credit Suisse |
Maintains |
Neutral |
Neutral |
Oct 2018 |
Goldman Sachs |
Initiates Coverage On |
|
Neutral |
Oct 2018 |
Standpoint Research |
Upgrades |
Hold |
Buy |
View More Analyst Ratings for
GPS
View the Latest Analyst
Ratings
© 2018 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.