Can Gap (GPS) Continue to Hold Investors' Attention?

The Gap Inc. GPS, a leading player in the highly fragmented specialty retail sector, houses globally recognized brands that complement one another and enables it to leverage its position in the sector.

The company has been doing an excellent job in penetrating deeper into the $1.4 trillion global apparel retail market to increase its international presence and earn investor attention. Recently, it has signed deals to bring the Gap brands to India, the Middle East, and some of the European countries. Moreover, Gap has been growing its presence in China with its 100th namesake store and plans to increase the count to 110 by the end of the year.

Further, the company has been adopting ways to enhance its e-Commerce and omni-channel presence in North America through its “find-in-store”, “Reserve-in-Store” and “Order in Store” facilities. In a recent effort to expand its online presence across the borders, the company collaborated with leading European fashion e-Commerce site, Zalando, where it will introduce its online shop. Through this store, Gap will offer a wide array of items, including accessories and clothing from Gap Women, Gap Men, GapKids and babyGap, beginning in summer 2015.

We also remain impressed with the company's better-than-expected comparable-store sales (comps) data for November, which reflects its strong start to the holiday shopping season. The company enjoyed improved sales during the month driven by early deals for Thanksgiving and Black Friday along with low gas prices, which encouraged consumers to spend liberally.

However, the company's third-quarter fiscal 2014 results, released on Nov 20, were a letdown. Gap posted lower-than-expected earnings for the quarter because of dismal top line and comps performance, coupled with increased operating costs. The company also lowered its earnings guidance for fiscal 2014. This instilled a downward trend in the Zacks Consensus Estimate for the fourth quarter, fiscal 2014 and 2015 over the last 30 days.

Consumer confidence and spending behavior may dampen due to macroeconomic factors, including increase in fuel and energy costs, credit availability, high unemployment levels and high household debt levels, which may affect the consumer's disposable income.

Gap currently has a Zacks Rank #3 (Hold).

Other Favorably Ranked Stocks

Other better-ranked retail stocks include Pacific Sunwear of California Inc. PSUN and Shoe Carnival Inc. SCVL, each carrying a Zacks Rank #1 (Strong Buy) and Bebe Stores, Inc. BEBE holding a Zacks Rank #2 (Buy).

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