Gap Is Still Hooked To Mall Traffic Headwinds

Gap Inc (NYSE: GPS) is still hooked to mall traffic headwinds in May though sales for the month was better than feared, according to the Buckingham analyst Kelly Halsor. However, the traffic was in-line with overall mall traffic. The analyst reiterated his Neutral rating and $18 price target, which implied 2 percent downside risks after the retailer reported its monthly sales number.

The brokerage thinks Gap is among several retailers to call out enhancing trends in the last week of May, indicating that weather was the biggest factor driving the weakness in retail in the April/May time period and with warm weather in the Northeast likely here to stay, traffic trends have the potential to improve in June and July.

Halsor said, "However, with GPS' traffic down HSD again in May, in-line with overall mall traffic despite the solid end to the month, GPS' comps appear to be beholden to volatile mall traffic with few tools in its belt to fight back (price, fashion, etc), leaving very little visibility into comp trends and/or EPS upside from here."

The brokerage expects GPS shares and the broader retail group to trade higher on short covering following the more upbeat news around late May trends. Halso added, "we view the positive news as somewhat fleeting without more visibility into EPS upside from here, and as such, we are cautious on GPS shares and mall-based apparel retailers overall on any move higher, particularly as we look toward the less meaningful summer months ahead for retail."

Shares of the company traded 4.42 percent higher on Friday.