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Gap's August Comps Surge

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Comparable store sales for the leading apparel retail chain Gap Inc. (GPS - Free Report) , rose 9% in August 2012 (four-week period ended August 25, 2012) versus a 6% decline in the comparable prior-year period. The rise in comps reflects its focus on delivering trend-right products to customers, as well as a solid store execution. Additionally, August comps for this global fashion retailer benefited from a strong back-to-school sale season, with exceptional results at Old Navy.

Moreover, net sales in August totaled $1.20 billion, up 9.1% compared with the prior-year period sales of $1.10 billion.

August comps at Gap North America spiked 9% against an 8% decline recorded in the prior-year period. Banana Republic North America’s same-store sales were up 8% versus a 4% dip recorded in August last year. Results at its Old Navy North America segment reflected a robust 12% rise in comps compared with a 4% fall in the prior-year period. On the flip side, comps at the International business declined 2% in August, but were comparatively better that the 9% decline recorded in the prior-year period.

Year-to-date through August 25, 2012, the company’s net sales increased 16% to $8.26 billion compared with $7.78 billion in the prior-year period. Improvements in net sales were primarily driven by 4% growth in the company’s comps figure.

Gap is scheduled to release its September sales results on October 4, 2012.

Concurrently, two of the company’s competitors, Ross Stores Inc. (ROST - Free Report) and Nordstrom Inc. (JWN - Free Report) , reported robust same-store sales for the month of August. Nordstrom recorded an outstanding 21.0% growth in August comps, while comps at Ross increased 8%.

We believe that Gap’s long-term strategic moves, along with disciplined cost management measures will not only provide financial flexibility to the company, but also help it drive value proposition. Moreover, Gap’s globally recognized brands complement one another, enabling it to leverage its position in the sector.

The company’s relentless focus on trying to return to the growth curve seems to be paying off, as evidenced by the solid comps and sales performance in recent months. The company has been posting positive comps for two consecutive months (July and August), while comps were flat in June and up in May. This reflects the significant progress the company has made despite the poor comps results in every month of fiscal 2011, with the exception of April and June.

Currently, Gap’s shares maintain a Zacks #1 Rank, which translates into a short-term Strong Buy rating. Our long-term recommendation on the stock remains Neutral.

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