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Gap's Strategies on Track, Shuts Banana Republic UK Stores

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Trouble is brewing for specialty retailer, The Gap, Inc. (GPS - Free Report) , which has been struggling with waning sales for over a year now. To revive its topline performance, Gap announced plans to shut down its Banana Republic outlets in the U.K., with an aim to focus on the profitable North American region to tap sales – as reported by sources. The company revealed plans to shutter all of its eight U.K. Banana Republic outlets, as part of its international brand analysis .

While the store closures are expected to conclude by next year, the company is on track to close most of these eight stores by the current fiscal year itself. However, customers in the region can continue to access products online, from the brand’s local website.

The Strategic Plan

The aforementioned store closures form part of the company’s previously chalked out strategic plan – to keep track of the accelerated pace of change in the apparel industry. Announced in May 2016, the plan focuses on growing Gap’s brands in regions which offer greater structural advantage and potential to expand market share, while closing the underperforming stores.

Apart from shutting down Banana Republic’s overseas operations, growing its Old Navy brand in the most favorable markets was also on Gap’s strategic agenda. The company had announced plans to close nearly 53 Old Navy stores in Japan in fiscal 2016, and focus on the brand’s growth in North America over the near term. Additionally, management expects China to remain a key area of focus for the entire company. Collectively, these actions are estimated to result in the closure of nearly 75 Old Navy and Banana Republic stores.

Also, Gap remains keen on streamlining its operating model by creating a more proficient global brand structure. Thus, the company anticipates its brands to better leverage its scale advantages and more quickly ascertain and respond to the changing needs of customers and the retail landscape.

The Background

In second-quarter fiscal 2016, the company’s sales of $3,851 million dipped 1.2% from the year-ago figure, mainly due to soft Banana Republic and Gap namesake brand performances. In fact, the quarter marked Banana Republic’s sixth consecutive comparable store sales decline in a row.

Clearly, the company has long been bearing the brunt of weakness across these brands, alongside being plagued by various other micro and macro issues like ever-changing fashion trends, slow traffic and foreign currency headwinds. Additionally, stiff competition from fast-growing fashion retailers and a speedy shift in preference to online shopping have been barriers in Gap’s growth path.

Now, let’s see if the implementation of Gap’s magic mantra can do any wonders to its operating performance.

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Zacks Rank & Key Picks

Gap currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry include Tilly's, Inc. (TLYS - Free Report) , with a Zacks Rank #1 (Strong Buy), American Eagle Outfitters, Inc. (AEO - Free Report) and Foot Locker, Inc. (FL - Free Report) , with a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tilly's, Inc. has an average positive earnings surprise of 73.7% over the trailing four quarters. The stock, with a long-term growth rate of 15.5%, has seen positive estimate revisions in the last 60 days.

American Eagle has to its credit a spectacular earnings trend, as the company has delivered a positive earnings surprise over the past four quarters. Moreover, its long-term EPS growth rate of 11.8% and positive estimate revisions over the past 60 days help it stand strong against the industry.

Foot Locker has an average earnings beat of 3.1% in the last four quarters and estimates have witnessed an uptrend over the last 7 days. Moreover, the company’s long-term growth rate of 9.9% and Earnings ESP of +5.41% bode well.

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