Vitaly Losev
All posts from Vitaly Losev
Vitaly Losev in OneTwoThree,

GAP's black friday has almost come.

Doris and Don Fisher opened the first Gap store in 1969 with a simple idea — to make it easier to find a pair of jeans and a commitment to do more. Over the last 46 years, the company has grown from a single store to a global fashion business with five brands — Gap, Banana Republic, Old Navy, Athleta and Intermix. Gap's clothes are available in 90 countries worldwide through 3,300 company-operated stores, almost 400 franchise stores, and e-commerce sites. Nowadays the Company offers apparel, accessories, and personal care products for men, women, and children under the Gap, Banana Republic, Old Navy, Piperlime, Athleta and Intermix brands. In addition to operating in the specialty, outlet, online and franchise channels, Gap Inc. is an apparel retailer in using omni-channel capabilities for digital world and physical stores. Its omni-channel services include order-in-store, reserve-in-store, find-in-store and ship-from-store that are tailored across its portfolio of brands. It also offers handbags, shoes, jewelry, eyewear and personal care products, among others.

1) Financial analysis

Currently GAP alas not a favorite among investors. Since early this year the company has lost about 35% of its value. At the current price of $ 25, the company is valued at 10,3B. In this case we have an example of when the ratio of price to earnings of 9.6 is fairly low. Gap Inc. has long been stagnant in terms of sales. In total since 2011 to the second quarter of 2015 GAP and companies it controls (Banana Republique, Auld Novi) showed zero growth in sales volumes. For the first six months of 2015 the figure was -3%. In total since 2011 to the second quarter of 2015 GAP and companies it controls (Banana Republique, Auld Novi) showed zero growth in sales volumes. For the first six months of 2015 the figure was minus 3%. Furthermore, the EPS for the second quarter is less than the same value of the previous year by 44% and amounts to $0.52 per share against $0.75 a year earlier. In addition, we see a trend of falling margins, for which the company tries to keep all the forces.

Despite these GAP shows a good ROI and ROE compared to the average. Also, the proportion of the debt is a safe and does not exceed 50% of the equity. However, the strength of the paper is the dividend policy. Despite all the problems the company consistently pays good dividends, todays yield is 3.6%. Moreover, in contrast to the dividend per share prices are rising rapidly.

The retailer lowered Gap’s North America store count by 233 between 2008 and 2014 and Old Navy’sstore count was down 54 in the same period. The main idea behind the store consolidation strategy was to improve productivity and profitability. The company closed the low-profit points and it paid off. Between 2009 and 2014, annual revenue generated per Gapstore and Old Navystore has increased at a compound annual growth rate of 3.9% and 2.1%, respectively. This clearly indicates that Gap Inc has closed stores that did not contribute much to overall revenues, though simultaneous growth in web revenues is also responsible for the rise.

2) Market conditions

In the latest quarter, Gap repurchased 10 million shares for $375 million. Along with a solid 3.3% dividend yield, Gap provides investors with an incredible net payout yield (dividend yield plus net stock buyback yield) in excess of 13%. Due to a drop in the price at the moment GAP had one of the highest yields on the market.

If we look at the comparative chart ield and price chart it is possible to observe a certain regularity. Thus, in 2011 after the intersection of the graphs followed a two-year rally. Even if the script does not repeat the current yield and the income from the share buyback promises good returns.

It should be noted that from January 2015 to the duties started a new CEO, Art Peck. It is difficult to say whether the change will help the CEO output of crisis growth, but hopes for it definitely is. GAP doing classical things, but they definitely do not keep up with fashion. Perhaps with the advent of the new director will come a fresh new vision of the market. The ability to predict the future trends - this is exactly what GAP is missing, and just what did Amancio Ortega the richest man in the world this year. Clearly the results of the changes can not be seen so quickly, so 2016 will be more indicative of the company's strategy.

3) Technical analysis

From the second quarter of 2015 GAP is trading in the area of technical oversold. Also at this time the price approached the level of support, so a reversal is possible. Much depends on the output statements. If the company manages to show at least a weak but positive result, it will be perceived positively, as investors' expectations are not high. If the report is bad, then the next resistance level will be about $ 23 per share.

4) Conclusion

The paper is now more than ever tied to the statistics, which gives a chance to those who are able to respond quickly to changing factors. Expecting report...