Specialty retailer Gap Inc. (GPS) share price has given up nearly 2% in the last five days and in the last one month it has lost around 6%. No need for panic, as investors are consolidating after booking profits made for the last few months. In the last three months, the shares climbed up by 17.46%. Looking back further, the share price gains are even more impressive. The share price rose by 36.8%, 63.26%, and 89.26% in 6 months, Year-to-Date, and one year period. Those who entered the market late needn't worry as I believe the stock is likely to make further gains by rising to $30 soon. Why am I so optimistic about the stock?
Short term share price boosters – Q3 and Q4 performance
Specialty retailer Gap Inc. (GPS) saw its third quarter profit increase 25% from last year, due to higher margins and improved sales at Old Navy stores. Quarterly earnings were in line with analysts' expectations, while revenues came in ahead of estimates. Moreover, the company's board has also authorized a new $500 million share repurchase program, effective immediately.
The San Francisco, California-based company posted net earnings of $307 million for the third quarter, up 25% from $246 million in the prior year quarter. Earnings per share rose to $0.44 from $0.35 in the previous year quarter. On average, 26 analysts polled by Thomson Reuters expected the company to report earnings of $0.44 per share for the third quarter. Analysts' estimates typically exclude special items. As a percentage of sales, gross margin increased by 380 basis points to 42.5%, the company's highest in a decade. Operating margin improved to 13.9% from 11.1% in the year-ago quarter. Third quarter net sales increased 1% to $3.59 billion from $3.56 billion in the same quarter last year.
In the fourth quarter of FY2010, the company is expected to post an EPS in excess of $0.4. Over the last four weeks, 21 analysts have revised their estimates upwards while just one revised the estimate downwards.
Five years outlook
Gap Inc, a large-cap growth company in the consumer services sector, is expected to outperform the market over the next six months with less than average risk. Gap is expected to close FY2010 with $1.5 EPS. The company's EPS is expected to rise by a compounded annual growth rate of 7.9% reaching $2.03 for FY2014. My favorable outlook is the outcome of the following trends.
Increasing online sales
The company's online division improved its sales by 14% last year, passing the $1 billion revenue threshold.
