GAP Inc.

By Howard Chen

Current EPS:  $1.05

2Q EPS:  $0.22

3Q Estimated (Oct):  $0.34

1999 Estimated EPS:  $1.22 (33.9%)

2000 Estimated EPS:  $1.48 (21.5%)

The numbers look good; the EPS is estimated to grow by more than 30% in 1999 vs. the EPS in 1998.  And the EPS is estimated to grow by more than 20% in 2000 vs. the EPS in 1999.  The only element that does not look too good is the P/E ratio (currently at 33.81x).

Main Competitors:

Their main competitors are The Limited, Abercrombie and Fitch, Tommy Hilfiger, Nautica, Polo

Position in the Industry:

Gap is one of the most well-known, retail, apparel companies.  It is very big, very solid, and here to stay.

Marketing Strategy:

Commercials, Billboards, Internet (merged with E-Toys); branches, such as Banana Republic and Old Navy, that offers different styles of clothing and different interior designs

Industry Heading as a Whole:

Internet and global market

Strengths/Weaknesses:

Earning’s Growth

 

Last 5 Years

This Year (Jan 00)

Next Year (Jan 01)

Next 5 Years

P/E (Jan 00)

Gap Inc
RETAIL-APP/SHOE
S&P 500

27.4 %
11.2 %
10.3 %

33.4 %
21.3 %
11.4 %

21.1 %
22.2 %
10.6 %

19.9 %
19.9 %
7.5 %

29.2
15.7
27.2

 

Gap’s earnings out-perform the rest of the retail industry and the S&P 500 in the last 5 years.  It is estimated to surpass the retail-app/shoe industry and the S&P 500 again this year.  However, its P/E ratio remains higher than its competitors.

Earning’s History

 

Jul 1998

Oct 1998

Jan 1999

Apr 1999

Jul 1999

Estimate
Actual
Difference
% Surprise

0.13
0.15
0.02
16.23 %

0.24
0.27
0.02
11.13 %

0.33
0.35
0.02
7.06 %

0.21
0.23
0.02
7.95 %

0.21
0.22
0.01
4.76 %

Gap has been consistently exceeding its estimated earnings every quarter since July of 1998.  However, the % Surprise seems like it is on a downward slope, which makes the future performance of Gap Inc. unclear. 

Buy Opinion:

This is a buy-and-keep stock.  Great for short-term, looking good for long term

Buy and keep within the next 6 months

Buy/Sell Triggers:

Gap’s exploiting the advantages offered by the Internet (long term and short term benefits)

Gap’s merger with E-Toys (long term)

Gap’s Internationalization (long term)

December – Christmas time (short term)