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The Gap Inc. (GPS), Limited Brands, Inc. (LTD): Your Cheatin’ Heart and Your Portfolio

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Does your bride sport RayBan aviators and a Michael Kors Holdings Ltd (NYSE:KORS) watch? Has she been buying more Victoria’s Secret underwear of late? These are favorite brands of ladies who cheat according to the extramarital site, Ashley Madison, which surveyed its female members for their favorite brands.

The Gap Inc.Good news for retailers, the shady ladies spend twice as much on apparel once they start cheating. Cheating may be the salvation of fashion retailers whose clothes philanderesses (?) like to buy. Maybe there should be a line called Philandress at Banana Republic, owned by The Gap Inc. (NYSE:GPS), the number one favorite apparel of cheaters. Unsurprisingly, Victoria’s Secret, owned by Limited Brands, Inc. (NYSE:LTD) made the top ten. They could call theirs Philundress.

Their cheatin’ hearts

While you may picture a fashionable femme fatale it turns out the lady cheaters also wear clothes from J.C. Penney Company, Inc. (NYSE:JCP)?! Who knew? Most of the cheating ladies at Ashley Madison are career women in their 30s according to its CEO Noel Biderman and these are the retailers that demographic shops.

Their cheatin’ hearts also fall for Macy’s, Inc. (NYSE:M) at number three and Ann Taylor at number four favorite brand. Lane Bryant, the plus size store owned by Ascena Retail Group Inc (NASDAQ:ASNA) also came in at number seven after bebe stores, inc. (NASDAQ:BEBE). Trailing at eight and nine are Chico’s FAS, Inc. (NYSE:CHS) and Lululemon Athletica inc. (NASDAQ:LULU), respectively.

The Gap Inc. (NYSE:GPS) has turned itself around after some shaky quarters. Gap owns Old Navy, Banana Republic, Piperlime, Athleta, Intermix, and the Gap with a total number of 300 franchisee-run stores, 3,100 company-operated stores and web sites in 90 countries.

The Gap Inc. (NYSE:GPS) is trading at 52 week highs at a 16.24 trailing P/E with a 1.50% yield. The stock is up 53.33% in the last year. As the family-friendly apparel retailer of the group (despite the Banana Republic rating by cheaters) selling to men, women, and children it has benefited from increasing consumer confidence.

It competes against most of these other retailers listed including Lululemon Athletica inc. (NASDAQ:LULU) with its ladies’ Athleta brand. Taking a page from Lululemon’s playbook it is reaching out to the yoga communities with classes just last week sponsoring for the first time the NYC Times Square summer solstice yoga event. Jefferies analyst Randal Konik wrote in a note in April that Athleta could almost triple from its current 34 store count to 100 and add $5-10 per share to The Gap Inc. (NYSE:GPS) stock.

Piperlime, The Gap Inc. (NYSE:GPS)’s e-commerce site, was dubbed “best shopping like a department store” by on online poll of fashionistas in April. Watch out, Macy’s, Inc. (NYSE:M) and Amazon.com, Inc. (NASDAQ:AMZN)!

The company is now trading 6.18 times book as the stock has climbed with a 42.90% quarterly earnings growth rate year (yoy). Since February analysts have revised upward their five year EPS growth rate from 9.37% to 12.17%. They have also been revising the median price target upward from $40.00 in April to $45.00 now.

In May the company reported same store sales up 7%, double the number for most retailers reporting at 3.4%.

Ascena Retail Group Inc (NASDAQ:ASNA) probably expected more bounce to the ounce from its acquisitions of Lane Bryant and Catherines plus-size brands but these key buys haven’t been enough to offset some of its foundering divisions like dress barn. The company reported disappointing Q3 results on June 5 guiding lower on FY 2013 earnings to $1.10-1.15 and reporting a drop in comps of 4% ex-e-commerce. EPS dropped from $0.34 to $0.26 from Q3 of 2012.

Ascena Retail has a trailing P/E of 22.87 and a forward P/E of 12.46 with a PEG of 1.04. It also owns maurice’s (teens), dress barn, and Justice (tweens) for a total of 3,800 stores in the US, Puerto Rico, and Canada.

Analysts believe that Ascena will perform better than Gap with a 15.87% five year EPS growth rate and a median price target of $21.00 for 20% upside.

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