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Gap Inc. (NYSE: GPS) on the surface looked really good today and you might think that the new colors might be creating more permanent interest.  The company reported that its March same-store sales were up 8% in March.  A year ago the company turned in a -10% drop in same-store sales, so this moves closer to a ‘back to even’ report in the company’s long-term turnaround.

The headline of 8% same-store sales growth should have piqued interest from investors if you just read the headlines.  The problem is that Gap shares have risen to above $26.50 after closing out 2011 at $18.46.  Yep, that is a gain of more than 40% against a near-12% gain in the S&P over the first quarter and that is not normal.

Gap has been plagued by years of disappointing sales and today may be a relief news headline on the surface.  The breakdown in comparable store sales showed that Gap was up 9% in North America (versus -9% year ago), Banana Republic was up 5% in North America (versus -8% year ago), and Old Navy was up 11% in North America (versus -12% year ago).  International same-store sales rose 2% from a -9% reading a year ago.

RetailMetrics already told us earlier this week that the Gap was getting higher sales revisions. Thomson Reuters has a target of $1.84 EPS for Gap’s current fiscal year and that translates to 14.4-times expected earnings.  That is not really expensive, but it is no longer cheap when you consider a gain of more than 40% in the shares over the last quarter.

Gap shares are still considered a turnaround but investors need to know that the current share price is actually higher than it has been over any point in over ten years on a dividend-adjusted price basis.  Its market cap is back up to $13 billion as well.

The headline news looked great, but investors are likely to demand more months and quarters of outperformance against peers before they are willing to massively commit to a bet that Gap will go back and challenge its highs from over a decade ago.

Gap shares are down $0.06 at $26.59 and $26.59 is what is represented as the Thomson Reuters consensus price target as well.

JON C. OGG