Thursday, November 5, 2009

The Gap boosts earnings guidance again (GPS)

Shares of AlphaNinja favorite The Gap (GPS) are up nicely today, after the company reported same-store-sales(SSS) for October were up 4%, versus the street expectation of +1.5%.

For the third quarter, SSS were flat - October showed positive acceleration.

Amazingly, Old Navy same store sales were +10% in q3, versus negative -18% last year!

Updating my model, I am trying to hold back from increasing assumptions too much. But the guidance for this quarter implies some very impressive gross margin strength, so I'll carry that through (just a tad) to the 4th quarter. Gap could hit 40% gross margins this year, a hell of a feat for this company under new CEO Glenn Murphy.

For 2010, I'm boosting total sales growth to 2%. With only a modest improvement in operating margin next year, they could earn over 1.90 per share, putting the stock over $30. I still own it, and I still recommend it.


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