Morningstar Analyst: Supply Chain, Athleta Unit, Key To Gap Q4

Gap Inc's GPS progress in supply chain improvements along with performance of its Athleta unit are key details an analyst will look for when the company posts fourth-quarter earnings later Thursday.

The San Francisco-based apparel retailer on February 9 pre-announced fourth-quarter sales growth of 3 percent to $4.71 billion. Same-store sales increased 2 percent, including by 11 percent at Old Navy and a 6 percent drop at Gap stores.

Morningstar Analyst Bridget Weishaar told Benzinga Thursday that supply chain improvements and results from Athleta are "key components" in the company's long-term performance.

Weishaar called Gap is an "under-appreciated margin expansion story."

Given that Gap has already posted highlights from the quarter "our focus will be more on details regarding sales trends by brand and margins," Weishaar said.

Athleta, which sells yoga and athletic apparel, was acquired by Gap in 2008 for about $150 million and is "an undervalued asset" according to Weishaar.

At the time of its acquisition, Athleta sold merchandise only via catalog and on line.

As of November, Athleta operated 92 stores, up from 65 in February 2013.

Gap operates more than 3,000 locations, with most under the namesake brand as well as Old Navy and Banana Republic.

Over the next five years, Weishaar expects Gap to post 3 percent average annual revenue growth and margin expansion to mid-teen levels.

The analyst called Gap "one of our favorite ideas in the consumer cyclical space."

Among 34 analysts following Gap, 23 maintain Hold ratings with three at Sell or Underweight. Eight maintain Buy ratings, according to FactSet.

Jake Mann and Brianna Valleskey contributed to this report.