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Gap Inc. (GPS) Down 19% YTD: Can Growth Strategies Help Revive Stock?

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The Gap, Inc. (GPS - Free Report) has lost 19.4% so far this year, primarily due to persistent weakness in the company’s namesake brand. This softness can be attributed to operational headwinds and assortment issues across the brand’s business. Shares of the company also underperformed the industry’s 14.8% decline.

Softness at the Gap brand has been hurting the company’s overall comparable store sales (comps), which remained flat in third-quarter fiscal 2018 after witnessing growth in the preceding seven quarters. Comps for the Gap brand fell 7% in the reported quarter.



In fiscal 2018, management expects the brand’s results to be down year over year. Consequently, Gap trimmed the higher end of earnings per share guidance for the fiscal year. Earnings are now envisioned to be $2.55-$2.60 per share versus $2.55-$2.70 mentioned earlier.

Nevertheless, Gap has been undertaking initiatives to revive performance at its flagship brand, which might take time. Further, the company’s robust omni-channel efforts, along with its growth strategy, are impressive.

Let’s Take a Look at Gap’s Strategies

Gap remains focused on enhancing its e-commerce and omni-channel capabilities by adopting a number of initiatives. Notably, the company increased online presence across all of its brands. It remains well on track to reach its target of more than $3.5 billion in online sales in fiscal 2018.

As part of enhancing omni-channel capabilities, the company has rolled out the Buy Online Pick up in Store (BOPIS) for its Old Navy brand, which is receiving positive response from customers. Additionally, the company is benefiting from its omni-channel endeavors like the “Find-in-Store,” “Reserve-in-Store” and “Order in Store” capabilities across various stores. Further, it remains on track to launch a personalization engine that is powered by customer data.

Gap opened 109 company-operated stores in the first nine months of fiscal 2018. Most of these were Old Navy and Athleta outlets, in sync with its growth strategy. This strategy is focused on two growth brands, Old Navy and Athleta. Management expects to achieve net sales of more than $10 billion and $1 billion, respectively, for Old Navy and Athleta brands in the coming years, driven by the expansion of the U.S. stores and e-commerce growth.

Additionally, the company plans to open 270 Old Navy and Athleta stores while simultaneously closing 200 underperforming Gap and Banana Republic stores over the next few years. Apparently, it shuttered about 56 stores, mainly Gap and Banana Republic stores, in the first nine months of the current fiscal year.

In fiscal 2018, Gap still anticipates opening nearly 25 company-operated stores, net of closures and repositions. Store-expansion strategy is expected to create about $500 million in expense savings, which is likely to aid business growth.

We believe that all these initiatives, combined with constant digital investments, should boost Gap’s top line and profitability. Notably, the company delivered positive earnings surprise in six of the last seven quarters. Further, sales beat estimates for the eighth consecutive quarter in the last reported quarter. These potent factors might bring the stock back on growth trajectory in the coming days.

Presently, Gap carries a Zacks Rank #3 (Hold).

Want Better-Ranked Retail Stocks? Check These

Boot Barn Holdings, Inc. (BOOT - Free Report) has an impressive long-term earnings growth rate of 23% and it currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Abercrombie & Fitch Co. (ANF - Free Report) is also a Zacks Ranked #1 stock. It posted average positive earnings surprise of 88.6% in the trailing four quarters.

Nordstrom, Inc. (JWN - Free Report) delivered average positive earnings surprise of 9.3% in the last four quarters. Further, the company has a Zacks Rank #2 (Buy).

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