Gap's (GPS) Stock Forays Into Green Zone: Will It Sustain?

Things seem to be turning for the troubled The Gap, Inc. (NYSE:GPS) ever since the company posted solid June sales data, breaking its fourteen-month long haul of negative comparable store sales (comps). The company, whose shares were on a downhill for over a year, saw its stock recover, as evident from its 5.9% jump since the June sales release.

Driven by the favorable Memorial Day shift from May to Jun 2016, Gap benefited from an increase in consumer traffic, especially at the company’s Old Navy brand. While Banana Republic and Gap’s namesake brands continued with their dismal trends, strong performance at Old Navy saved the day for Gap, helping it post a 2% jump in both sales and comps for Jun 2016.

Owing to its exposure to international markets, Gap faces various risks associated with international operations, including legal and regulatory hurdles, changing global fashion trends and unfavorable currency fluctuations.

Evidently, prior to this, the company had been struggling with waning sales for a long time, owing to the ever-changing fashion trends, slow traffic and currency headwinds. These hurdles have been weighing upon all brands, mainly Banana Republic and Gap’s namesake brand, both of which have been witnessing deteriorating trends for a while.

While the persistence of unfavorable currency fluctuations remains a threat to the company, Gap has long been making significant efforts to bring a turnaround to its business. In this regard, management 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.

Also, the company remains keen on streamlining its operating model by creating a more proficient global brand structure, which will enable its brands to utilize scale advantages more efficiently. Clearly, the company remains committed to positioning itself better for long-term growth by setting its priorities right and channelizing its resources accordingly.

Well, after the June sales results, some analysts believe that Gap’s makeover efforts are finally starting to bear fruit. Let’s see if this Zacks Rank #3 (Hold) company can keep this optimism alive in the future.

Stocks to Consider

Some better-ranked stocks in the same industry include The Children's Place, Inc. (NASDAQ:PLCE) and Christopher & Banks Corporation (NYSE:CBK) , each with a Zacks Rank #1 (Strong Buy), and American Eagle Outfitters, Inc. (NYSE:AEO) , with a Zacks Rank #2 (Buy).

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