(By Kevin Donovan) The Vietnam War was raging, Richard Nixon was president, and Woodstock defined a generation, which was said to be separated from its elders by a gap – the generation gap. A San Francisco retailer born in 1969 claimed the name and almost two generations later is youthful again.
Gap Inc. (GPS) shares reached a new 52-week high intraday Thursday after reporting that comparable-store sales popped 9% in August compared with a year ago, blowing away analysts' expectations for roughly half that gain. At $36.11, Gap shares have nearly doubled year to date. The stock has traded between $14.75 and $36.33 in the last 52 weeks.
We think the rebirth of the company's ability to capture the fashion winds in its sails argues for billowing sales ahead and further stock price appreciation as estimates increase and the macroeconomic environment remains at least strong enough to keep current market and sector multiples afloat.
Granted, comparison with last year may have been helped by Hurricane Irene, which pounded the entire East Coast in August 2011, but Gap and other apparel retailers probably hit the right fashion note as well. Multicolor jeans, low-slung khakis and a successful tie-in with the AMC series "Mad Men" have been hits with customers.
In a statement accompanying the August sales announcement, CEO Glenn Murphy said the results "underscore our focus to deliver trend-right product supported by great store execution." Back-to-school sales were strong, he said, particularly at Old Navy, where comps were up 12% versus a negative 4% last year. Even the international comparison proved less of a drag, dropping 2% compared with the August 2011 comp of negative 9%.
Year-to-date net sales were $8.26 billion for the 30 weeks ended August 25, 2012, an increase of 6% compared with the 30 weeks ended August 27, 2011. The company's year-to-date comparable sales increased 4 percent compared with a 3 percent decrease last year.
On the valuation front, Gap trades at 15.24 times next year's earnings, a premium to the S&P 500 and ratios of 14.67 and 11.39 for competitors American Eagle Outfitters (AEO) and Aeropostale (ARO), respectively. On another measure, Gap trades at 1.18 times sales, compared with 1.32 and 0.48 for AEO and ARO, respectively.
The Gap, Inc. operates as a specialty retailer offering apparel, accessories, and personal care products for men, women, children, and babies under the Gap, Old Navy, Banana Republic, Piperlime, and Athleta brand names. Its products include denim, khakis, outerwear, tees, and accessories; maternity apparel; women's loungewear, sleepwear, intimates, and sports and active apparel; and handbags, shoes, jewelry, personal care products, and eyewear. It has franchise agreements with unaffiliated franchisees to operate stores in Asia, Australia, eastern Europe, Latin America, the Middle East, and Africa under the Gap and Banana Republic brand names. As of March 20, 2012, it had approximately 3,000 company-operated stores and 200 franchise stores in 90 countries worldwide.