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The Gap Inc. (GPS): Retailers Post Quarterly Results; Should We Buy?

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The week of May 20 was an interesting one for the retail world. Three pretty big names actually released earnings, and I took a look into what the results could mean for the companies.

I’m sure that many of you by now have seen that The Gap Inc. (NYSE:GPS) is making something of a comeback. Abercrombie & Fitch (NYSE:ANF) also reported on May 20; the market didn’t seem too happy about that one, though. Rounding things out in this article will be a look at Sears Holdings Corporation (NASDAQ:SHLD), a company that is surely on the brink of defeat, if not well past it.

The Gap Inc.

Bound to fail?

When people believe your company is bound to fail, there’s probably a whole lot of work to be done. Sears Holdings Corporation (NASDAQ:SHLD) is facing that challenge now, and it’s looking like defeat is surely upon the company.

The company ended Friday down more than 13% due to a terrible quarterly report. In fact, I’m fairly certain terrible doesn’t justify it. The company was expected to lose around about $0.60 per share. When the reports actually came out, investors learned the company lost $2.63 for the quarter.

For those who own the stock, or at least pay some attention to it, you’ll have noticed that the 13% slide kind of knocked some wind out of the sails of a company that has been on a tear over past couple of months.

Should we buy it?

Can you afford to buy Sears Holdings Corporation (NASDAQ:SHLD) at these levels? I would say that you should, but only if you want to lose your money. The company is worth some $5 billion currently and has a whopping -$8.78 EPS to its name. At this point in the game, the sale of certain assets is surely the only way out for Sears.

With negative profit margins, even over the five-year average, I’d definitely recommend avoiding this company. If the five-year track record of losing money isn’t good enough, then maybe knowing that Sears Holdings Corporation (NASDAQ:SHLD)’ books are covered in debt might be enough to keep you away.

Lacking profits

Abercrombie & Fitch Co. (NYSE:ANF) also reported earnings; results were negative, too. The company managed to lose $0.09 per share. That’s an improvement from last year, but the company still lacks profitability.

When the news reached the market, Abercrombie & Fitch Co. (NYSE:ANF)’s stock took an 8% dive. That steep drop was likely helped along by the company also missing revenue expectations by some $100 million.

During the earnings call, investors also found out that same-store sales at the company were down around about 15% year-over-year.

To make matters even worse for the retailer, Abercrombie & Fitch Co. (NYSE:ANF) cut performance guidance. The annual forecast was cut by about 10%. That’s definitely not something you want in a company.

Should we buy it?

I would keep far away from Abercrombie & Fitch Co. (NYSE:ANF), simply because of the CEO. Over the last couple of weeks, he has had his fair share of attention across the Internet for comments he made about overweight people.

Those comments had a drastic effect on the brand feedback that YouGov tracks in its brand index. While one little index can’t be the fool-proof guide to investing, I think I’d prefer to keep my money in other companies.

Rising tide

The Gap Inc. (NYSE:GPS) is actually starting to please me somewhat, and it’s one of the few retailers doing so. The company actually managed to put up a 43% rise in quarterly earnings when it released on May 24.

The Gap Inc. (NYSE:GPS) saw overall company same-store sales take a 2% bump. Gap stores themselves were up 3%, as were Old Navy stores while Banana Republic remained flat.

Should we buy it?

The Gap Inc. (NYSE:GPS) has been closing down stores across the country in order to get the company back in line. It has worked for now. I believe that this is the best company in the clothing sector if you want a play on what could be some good growth going forward.

The Gap Inc. (NYSE:GPS) is beating out the apparel industry when it comes to its average net profit margin. The company has a five-year average of 7.1%. Return on equity at Gap is also quite solid. Just shy of 40% is the most recent number, but the company averaged 19.6% over the last five years.

The Gap Inc. (NYSE:GPS) is seemingly beating the apparel-store portion of the retail market in all the areas that matter, and that’s something you should definitely be looking for if you want exposure to this segment in your portfolio.

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