Oppenheimer Lowers GAP FY10E/FY11E

Gap, Inc. GPS reported FY3Q10 EPS of $0.48 vs. Oppenheimer/consensus $0.47, Oppenheimer reports. “Revenues increased 2% to $3.654B on a flat comp. GM deteriorated 130 bps to 41.2% reflecting a drop in merchandise margin (-180 bps) partially offset by buying and occupancy leverage (+50 bps). SG&A declined 110 bps to 27.4% resulting in a 10 bp decrease in operating margin to 13.8%,” Oppenheimer writes. “While several initiatives are in place to drive long-term sales, margin and earnings expansion, near term we remain concerned that high cotton exposure, store-wide vs. item-specific promotional cadence, increased competitive landscape and moderating average unit cost savings limit upside opportunity and add to downside risk.” Oppenheimer is lowering its FY10E to $1.80 from $1.81, reflecting 3% top-line growth, 50 bp decline in GM, 60 bps of SG&A leverage, 20 bp rise in operating margins. Oppenheimer is also lowering its FY11E to $1.90 from $2.01. Gap currently trades at $20.91.