Gap Uddate Hold Target Price $ 44

GPS : NYSE : US$39.68
Target: US$44.00

COMPANY DESCRIPTION: Gap is a global specialty retailer of clothing and accessories for women, men, and children. GPS brands consist of Gap, Old Navy, Banana Republic, Athleta, and Piperlime. The company operates around 3,100 stores
worldwide, and GPS products are sold through 300 franchise locations.
All amounts in US$ unless otherwise noted.

Consumer & Retail — Specialty Retail
Investment recommendation
GPS reported a SSS decline of 3% on top of +6% in September. We had forecast +3%, and the consensus estimate was +2%. The company noted traffic decelerated throughout the month, particularly as the government shutdown approached. According to ShopperTrak, U.S. retail traffic was down 5% in the last week of September and has declined in 12 of the last 15 weeks.

We are  maintaining our HOLD rating as we do not see any near-term catalysts that would propel shares out of their current range, especially given the deteriorating retail traffic environment.
Investment highlights
 GPS suffered September SSS declines across all core categories. Gap global SSS were -3% on top of +3%, Banana
Republic global -5% on top of +4%, and Old Navy global -2% on top of +10%.
 We are lowering our Q3 EPS estimate by $0.03 to $0.65, $0.04 below prior consensus. We now forecast a SSS decline of 0.7% on top of +6%, versus our prior +1.8% estimate. This would be GPS’s first down quarter since Q4:11.
 Our long-term projections move higher as we are increasing our share buyback assumptions. We now estimate an
average $1.2B in annual buybacks from FY14-FY17. We had previously not modeled for any repurchases in the out years.


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