Thursday, September 3, 2009

Two retailers, two different directions (GPS, ANF)

AlphaNinja - The Gap (GPS) and Abercrombie (ANF) were among many retailers reporting same-store-sales this morning. Is Abercrombie facing the same brand damage that Gap lost years ago, while Gap is recovering its lost luster?

Abercrombie reported same store sales down 29%, and the shares are off 4%. Premium-priced among the mall-based teen retailers, ANF has been grappling with how to get promotional on pricing while attempting to "protect the brand." Many investors have been frustrated with their approach, as well as with the possibility that ANF management has a higher opinion of their "brand" than the consumer does. They may not realize that people will be happy paying 50% less for a shirt that's 80% as good as what Abercrombie is selling.

Over at the Gap, the sales release contains the BIG surprise (at least to some) that Old Navy same store sales were +7% year over year. Granted the comparisons to last year are easy, but it's still the first solidly (over 1%) higher sales number for this division since Q2 2007. As The company's biggest division, this is great news.

Same store sales figures may be great at some stores, but that doesn't mean the MARGINS actually were (big sales numbers at giveaway prices are certainly nothing to be proud of). However, it looks as if the Old Navy sales were of high quality:

“During August, customers responded well to our denim collections at Gap and Old Navy,” said Sabrina Simmons, chief financial officer of Gap Inc. “We were especially pleased by the progress at Old Navy and its strong back to school performance, which helped support total company merchandise margins significantly above last year.”

I've been positive on GPS shares for some time, as CEO Glenn Murphy orientates the company's focus around just the thing cited above -->> profitable sales, over highly promotional sales. The company's Free Cash Flow Yield is still juicy, and upside remains to what I consider to be a fully-valued price for the shares in the mid-20's:

(Disclosure - long GPS)

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