NEW YORK — The easy part of Gap Inc.’s recovery seems to have passed, and analysts are now questioning how strong the retailer’s near-term results will be. Ever-increasing competition, weak traffic levels, difficult upcoming sales...
NEW YORK — The easy part of Gap Inc.’s recovery seems to have passed, and analysts are now questioning how strong the retailer’s near-term results will be. Ever-increasing competition, weak traffic levels, difficult upcoming sales comparisons and a new concept catering to women over 35 that likely won’t be accretive to earnings for a few years are causes for concern.
Following a downgrade of the stock late last week, Gap shares fell again in Monday trading after losing 2.2 percent on Friday.
Warning signs of a deceleration in sales first appeared when the company reported a 2 percent drop in aggregate June same-store sales, its first decrease in 25 months. That was followed by a 5 percent drop in July and a 1 percent decrease in August comps. Now, Wachovia Securities analyst Joseph Teklits is worried that “choppy” traffic and merchandise levels have continued into September, which he said will be “a telling month” testing the success of the company’s new ad campaign, featuring Sarah Jessica Parker.
A main question for Teklits is: Have efforts for the fall season been unsuccessful at boosting sales, or are core customers just not understanding or appreciating Gap’s latest looks? Teklits is calling for a 1.5 percent increase in September comps, which would compare with a 13 percent increase for September 2003.
“Product will still be the key to the company’s success from season to season, and the visibility here is no greater than for the average apparel retailer,” Teklits wrote in a research report issued Thursday, in which he downgraded Gap shares to “market perform” from “outperform” and cut earnings estimates to below consensus estimates. In light of an “up to” 40 percent off sale the company launched at Gap stores on Sept. 24 (compared with Sept. 29 last year), where customers can also clip an extra 10 percent off coupon from the newspaper, Teklits is “worried that the product and marketing efforts have carried the company as far as it can go for now.” He estimates that roughly 80 percent of Gap’s merchandise is now on sale.
According to a Goldman Sachs weekly price monitor research report released Friday, sale activity at Gap stores is “well above levels from six weeks ago.” About 42 percent of adult Gap-branded items were on sale in the just-completed week, with average markdowns of 39 percent.
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