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Here???s Why Gap (GPS) is Worth Adding to Your Portfolio Now

The Gap, Inc. GPS looks appeasing on the back of its new growth strategy, solid focus on enhancing product quality and responsiveness to changing consumer trends. Also, the company has been making constant efforts to boost its digital and mobile offerings, alongside improving product acceptance.

These attributes have been well received by investors, evident from the stock’s price momentum. Shares of this Zacks Rank #2 (Buy) company have rallied 24.7% year to date, as against the industry’s decline of 26.8%. Further, the company’s VGM Score of A and long-term earnings growth rate of 8% highlight its inherent strength.

New Growth Strategy

Gap remains focused on its two growth brands — Old Navy and Athleta — as a part of its new growth strategy. Additionally, management expects net sales of more than $10 billion and $1 billion, respectively, at each of these brands, over the next few years. The projected gains can be attributed to the U.S. store expansion as well as mobile and e-commerce growth.

Going forward, the company plans to open 270 Old Navy and Athleta stores, besides simultaneously closing 200 underperforming Gap and Banana Republic stores, in the next three years. It also expects these new strategies to create about $500 million of expense savings over the same period. The company plans to reinvest a portion of these savings for achieving its growth goals.

Strategic Endeavors

Gap continues with its strategic plans that are aimed at keeping track of the accelerated pace of change in the apparel industry. In this regard, the company is in the process of speeding up its transformation plan by bringing meaningful changes to its product portfolio and operating capabilities worldwide. Also, management 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.

Meanwhile, the company is focusing on the enhancement of its e-commerce and omni-channel capabilities by adopting a number of initiatives, as the brick-and-mortar retailing concept has been losing luster in the past few years. To this end, Gap has increased the online presence across all of its brands, and announced plans to launch — the buy online and pick-up in store service — a new personalization engine that is powered by customer data, and continued significant investment in its omni-channel services.

Outlook Bodes Well

Driven by the company’s growth efforts and a solid first half of fiscal 2017, management raised earnings view for the current year. It now envisions adjusted earnings in the range of $2.02-$2.10 per share compared with the previous range of $1.95-$2.05. The Zacks Consensus Estimate for fiscal 2017 has moved up by a penny in the last seven days and is pegged at $2.07.

Markedly, Gap’s earnings have outpaced the Zacks Consensus Estimate in three of the last four quarters, with an average of 9.3%.

Bottom Line

Though Gap’s significant international presence exposes it to adverse currency fluctuations that are expected to persist in fiscal 2017, we believe that the company’s initiatives should not only boost performance but also help in countering these headwinds, going forward.

3 Retail Stocks Hogging the Limelight

Some other top-ranked stocks in the same industry include Zumiez Inc. ZUMZ, Abercrombie & Fitch Co. ANF and The Children's Place, Inc. PLCE. While Zumiez and Abercrombie sport a Zacks Rank #1 (Strong Buy), Children's Place carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zumiez has a long-term earnings growth rate of 15%. Also, its bottom line has surpassed the Zacks Consensus Estimate in each of the trailing four quarters, with an average of 27.1%.

Abercrombie has delivered positive earnings surprise of 52.9% in the last quarter and has a long-term earnings growth rate of 14%.

Children's Place has a long-term earnings growth rate of 9%. Also, its bottom line has outpaced the Zacks Consensus Estimate in each of the last four quarters, with an average of 16.3%.

Will You Make a Fortune on the Shift to Electric Cars?

Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.

With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.

It's not the one you think.

See This Ticker Free >>

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Zumiez Inc. (ZUMZ): Free Stock Analysis Report
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Gap, Inc. (The) (GPS): Free Stock Analysis Report
Children's Place, Inc. (The) (PLCE): Free Stock Analysis Report
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