Gap Upgraded by Deutsche Bank

An upgrade by Deutsche Bank Securities Inc. on shares of Gap Inc. to "buy" failed to buoy shares of the stock on Tuesday.

NEW YORK — An upgrade by Deutsche Bank Securities Inc. on shares of Gap Inc. to “buy” failed to buoy shares of the stock on Tuesday even though the brokerage firm said improvements at the specialty retailer’s namesake brand are noticeable after over a year of weak same-store sales and margins.

After a strong start to the day — when Gap shares hit a high of nearly $19.30 — the stock settled at $18.94 on the New York Stock Exchange, up just 0.6 percent from the prior close. Still, it was the stock’s highest close since early September. Gap shares also had above-average trading volume on Tuesday, with 6.7 million shares trading hands, versus average volume of 5.9 million.

Research analyst Gabrielle Kivitz, who also raised her price target on Gap shares to $21 from $18, wrote in a report released Sunday night that management initiatives at the Gap brand “are finally visible.”

“Product is more fashion-relevant than it has been in a while, and is also more reflective of the core brand aesthetic to which the company has been talking about returning,” she said.

Positive momentum for the brand is reflected by the retailer’s postponing markdowns of its first spring delivery, which Kivitz took “as an indication of healthy demand and strong sell-through.” The analyst noted improvement in the Gap brand’s bottoms business, which, as a broader trend, shows the category is “moving beyond just denim.” As such, Gap is well positioned in cargoes for women, Kivitz wrote. Kivitz remains cautious on the Gap brand, adding in her report that “there is still a lot of work to be done.”

And at Old Navy, the brand “still has a far way to go,” the analyst said. But she expects the company “should be able to make necessary improvements and/or additions at Old Navy to drive improvement,” given actions already taken at the Gap brand.

Gap will report fourth-quarter earnings on Thursday after the close of the market. Wall Street is expecting the company to earn 39 cents in the quarter — which would compare with 40 cents in last year’s fourth quarter — and $1.24 in the year.

This story first appeared in the February 22, 2006 issue of WWD.  Subscribe Today.

Earlier this month Gap forecast earnings of $1.22 to $1.25 in the year, which includes a tax benefit.