Gap Posts Strong Oct and 3Q Sales

Leading apparel retail chain, Gap Inc. ( GPS - Analyst Report ) , posted strong October and third quarter comparable store sales (comps) driven by sustained strength in its North American brands portfolio. Going forward, the company targets to maintain its business performance by improving its product offerings for customers.

October (four-week period ended October 27, 2012) comps at Gap rose 4% versus a 6% decline in the comparable prior-year period. Moreover, net sales in October summed to $1.22 billion, up 7.0% compared with the prior-year period sales of $1.14 billion.

Comps at Gap North America increased 6% against a 5% decline recorded in the prior-year period. Banana Republic North America’s same-store sales were up 5% versus a 1% increase in October last year. Results at its Old Navy North America segment reflected a 5% rise in comps compared with a 9% fall in the prior-year period. On the flip side, comps at the International business declined 2% for the month, but were comparatively better than the 7% decline recorded in the prior-year period.

Simultaneously, the company reported an improvement in third quarter comps and sales numbers. Comps for the quarter escalated 6% compared with a 5% decline in third quarter last year. Improvement in the quarter’s comps came from a 7% elevation in comps at Gap North America, a 6% comps growth at Banana Republic North America and a 9% comps augmentation at Old Navy North America; offset by a 3% comps decline in the International segment. Net sales came in at $3.86 billion, an increase of 8% from $3.59 billion reported in the year-ago quarter.

Year-to-date through October 27, 2012, the company’s net sales climbed 6% to $10.93 billion compared with $10.27 billion in the prior-year period. Improvements in net sales were primarily driven by 5% growth in the company’s comps.

Concurrently, two of the company’s competitors – Ross Stores Inc. ( ROST - Snapshot Report ) and Nordstrom Inc. ( JWN - Analyst Report ) – reported enhanced same-store sales for the month of October. Nordstrom recorded 9.8% growth in October comps, while comps at Ross increased 4%.

Gap is scheduled to release its third quarter financial results after the market closes on November 15, 2012.

The company projects third quarter earnings per share in the 61 cents – 63 cents range, versus 38 cents earned in the year-ago quarter. The Zacks Consensus Estimate for the quarter stands at the higher end of the company’s guidance range.

We believe the company’s relentless focus on turnaround strategies for improvising the top line are paying off, which is reflected in its solid comps and sales performance in recent months. The company has now posted positive comps for four consecutive months (July, August, September and October).

Further, Gap’s long-term strategic moves, along with disciplined cost management measures will not only provide it financial flexibility, but will also help reduce operating expenses. Moreover, Gap’s globally recognized brands complement one another, enabling it to leverage its position in the sector.

Currently, Gap’s shares maintain a Zacks #2 Rank, which translates into a short-term Buy rating. Our long-term recommendation on the stock remains Outperform.