The Gap Inc. (GPS): Is 2013 a Turnaround Year for This Retailer?

The Gap Inc. (NYSE:GPS)  is a global retailer offering apparel, personal-care products and accessories under six flagship brands of Gap, Banana Republic, Old Navy, Athleta, Piperlime and newly acquired Intermix. On April 17, it laid out the next phase of growth plans. This means that the company is at the onset of rapid progress. Can 2013 be a turnaround year for Gap?

Gap vs. the apparel retailer industry

Of all the apparel retailer stocks in the S&P 500 index, The Gap Inc. (NYSE:GPS) has been easily the best performer. The stock has risen around 37% in the past 12 months. Gap has several avenues of investment plans in mind in the future which makes its earnings potential high. This can validated by looking at the one-year earnings per share (EPS) growth rate of Gap, which is projected to be 13%, compared to the apparel retailer industry’s 9%. Also the price-to-earnings-to-growth ratio is positive compared to other retailers, which have projected earnings potential to be negative. Gap also provides a better dividend yield to investors. Last year, it generated $1.3 billion in free cash flow and distributed the entire amount to shareholders.

Overall sales figures up in March

Net sales for The Gap Inc. (NYSE:GPS) in 2012 stood at $15.7 billion. The recent sales figures of Gap also seem impressive with total sales in March up by 7% reaching $1.56 billion after generating positive sales throughout the previous fiscal year. If I look at the breakdown of sales by brand, Banana Republic gained 1% while Old Navy dropped 2%. The growth in overall sales is a positive point for the investors who were concerned about the higher payroll taxes that could hit consumer spending and in turn affect retail stores. But that did not happen in The Gap Inc. (NYSE:GPS)’s case.

Big expansion plans with focus on China

China has become a huge market for apparel retailers due to the growing popularity of international brands in the minds of Chinese consumers. Not just Gap, every other apparel retailer in US is focusing on expansion online and overseas, mainly in China. During the recent meeting, The Gap Inc. (NYSE:GPS) said that it will begin to franchise Old Navy in certain international markets next year. It also plans to open around 160 company-run stores this year along with Gap China, Old Navy Japan and Athleta outlets. Gap’s multiple brand channels and geography model has been the differentiating factor for the company until now. Building on the success in online sales growth, The Gap Inc. (NYSE:GPS) also plans to merge online and brick-and-mortar shopping experiences. This strategy will meet the needs of customers wishing for an integrated shopping experience and drive store traffic and revenue.