Gap's Comeback

Gap shopping
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After years of being beaten by other clothing retailers, Gap Inc. (NYSE: GPS) is finally showing signs that its turnaround, which has faced several false starts, is successful. Recent earnings show that the company has renewed stability across its brands. The figures also exceeded Wall Street’s expectations, which drove its stock higher.

Investors saw early signs of new success a few months ago. Over five years, Gap shares fell 25% while the S&P 500 rose by 88%. In the most recent year, the stock was up 60%, compared to a 29% increase in the S&P 500. New earnings pushed the stock another 10% higher.

For the most recent quarter, Gap’s total revenue was flat at $4.3 billion after years of decline. Net income was $185 million, compared to a loss of $273 million in the same quarter a year ago. Gap President and Chief Executive Officer Richard Dickson commented, “The fourth quarter exceeded expectations on several key metrics along with market share gains, reflecting improved trends at Old Navy and Gap and strong continued progress on margins and cash flow.”

Among the best ways to look at Gap’s performance is via its brands. Its largest brand, Old Navy, posted a revenue increase of 6% to $2.3 billion in the quarter. Deeply troubled flagship brand Gap has started to pull out of a nosedive. Its revenue dropped only 5% to $1 billion. The other large brand, Banana Republic, posted a revenue drop of 2% to $567 million. (These 24 clothing brands are still made in America.)

Flat revenue is not usually something to cheer about. However, after repeated failures in getting its business stable, Gap management has proven it has finally reached that milestone.


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