How Each Of The Gap's Brands Contributed To Its Weak Comps

Following the release of the September sales results, Buckingham Research Group reiterated its Neutral rating and $23 price target on the shares of Gap Inc GPS. The firm noted that sales fell 2 percent in September on a 3 percent drop in same-store sales, worse than the 2 percent drop the consensus estimated.

Analyst Kelly Halsor noted that Gap brand saw a 10 percent slump in comps. and the Banana Republic a 9 percent drop, while same-store sales at Old Navy rose 4 percent. The company reasoned that the recent Fishkill fire impacted comps by 200 basis points. The company feels the impact to the third-quarter earnings per share would be negated by stronger gross margin.

The firm believes that the positive comps at Old Navy points to an improvement in the retail environment in September. The firm said it remains bullish, looking into October and the fourth quarter, as weather is expected to be much cooler than last year.

Related Link: Stifel Responds To Gap's September Numbers: "Old Navy On Fire"

Buckingham sees potential for upside to merchandise margins in the second half of 2016, driven by Old Navy outperformance, given its estimate that it contributes to about 60 percent of the company's profitability. The firm sees potential EPS upside due to its expectations that negative impact of the DC fire will dissipate to 200 basis points in the fourth quarter from 300 basis points currently.

At last check, the shares of Gap were up 14.75 percent at $26.14.

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