Gap's (GPS) Dismal August Sales & Fishkill Fire Hurt Stock

Shares of specialty-retailer The Gap Inc. (NYSE:GPS) slipped 1.3% in the after-market trading session yesterday as the company posted dismal sales results for August.

Gap, which has been struggling with its top line and comparable store sales (comps) for a while now, continued to be marred by softness across its Banana Republic and namesake brands, though getting partial respite from Old Navy’s decent performance. Additionally, sources revealed that stiff competition from fast-growing fashion retailers and a speedy shift in preference to online shopping have been barriers in Gap’s growth path.

August Sales

Coming to numbers, Gap’s net sales for Aug 2016 dropped nearly 2% to $1.17 billion from $1.20 billion recorded in the same period last year. Also, the company’s comps for the month fell 3%, compared with a 2% dip noted in the year-ago period.

Evidently, comps at Gap Global slipped 5%, after last year’s 8% decline. Further, performance at Banana Republic Global continued to be weak, as the brand recorded a 10% drop, compared with an 11% decline last year. Old Navy on the other hand, spelled out decent results as comps inched up 1%, though lower than a 6% increase witnessed last year.

Campus Fire

Concurrently, Gap revealed that its Fishkill, NY distribution center caught fire recently and the company is in the process of analyzing the impact from the same. Meanwhile, Gap undertook several contingency steps to minimize the adverse effects from this calamity. These include the company’s act of rerouting deliveries and increasing the staff strength at other facilities. Evidently, Gap is using its North American distribution center channel and ship-from-store capacity to curtail the impact of the fallout. Nonetheless, some analysts believe that this hazard is likely to pressurize Gap’s results to an extent, by hurting its sales.

Moving back to the sales results – while Gap’s top line has been bearing the brunt of the ever-changing fashion trends, slow traffic, currency headwinds and softness across the Banana Republic and Gap Global brands, management stated that it remains committed to enhance the performance of all its brands. Further, this Zacks Rank #3 (Hold) company recently chalked out a fresh strategic plan to keep track of the accelerated pace of change in the apparel industry.

The company intends to speed up its transformation plan by bringing meaningful changes to its product portfolio and operating capabilities worldwide. Though the August sales results indicate that Gap is still not out of the woods, let’s see if the aforementioned efforts can bring about a turnaround in its business.

Stocks to Consider

Better-ranked stocks worth considering in the same industry include The Children's Place, Inc. (NASDAQ:PLCE) , Tilly's, Inc. (NYSE:TLYS) and Urban Outfitters Inc. (NASDAQ:URBN) , each sporting a Zacks Rank #1 (Strong Buy).

Confidential from Zacks

Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>