Gap Rise Temporary; Investors Should Look Elsewhere for Fashion Value

The Gap jumped nearly 5% after reporting same-store sales growth for June, but the company hasn't solved fundamental obstacles to consistent, long-term growth.
By Matt Thalman ,

On Friday, Gap (GPS) - Get Report announced that same-store sales rose more than 2% in June compared to a year ago. Shares jumped on the announcement, and Gap closed 4.9% higher.

It was the first time in 15 months that Gap has posted improved same-store sales.

Still, investors would be wise to stay away from the clothing retailer.

Bricks-and-mortar fashion retailers face huge challenges. They must compete against an increasing number of design labels that can now market directly to consumers via the internet. By eliminating middle parties, these newcomers can offer cheap, high-quality merchandise at affordable prices. Gap has faced an additional obstacle restoring its reputation for producing high-caliber clothing and accessories at affordable prices.

To be sure, Gap's announcement was encouraging. 

But a breakdown of sales during June suggests that the situation at Gap may not be as rosy as it seems on first glance.  Old Navy posted a 5% same-store sales increase, but Gap branded stores declined 1% and Banana Republic sales dropped 4%.

This information indicates that while perhaps Old Navy is on the right track, the other brands are still struggling. 

Furthermore, this year Memorial Day fell during the month of June, not May, which may have helped sales compared to last year.

One beat out of 15 months shouldn't entice investors to buy shares. 

They would be better off considering TJX Companies, Dick's Sporting Goods, and Amazon.com, whose presence in fashion has been rising.

TJX is a discount retailer that has thrived regardless of the economy. It is a much larger company than its closest competitor, Ross Stores Dick's Sporting Goods should benefit from the closure of Sport Authority, not to mention the coming Olympic Games in Brazil. 

Amazon seems on its way to becoming the largest apparel retailer in the U.S. by 2017. Furthermore, due to Amazon's massive size and diverse revenue, investors don't need to worry about the company missing a fashion trend, or if the apparel industry begins to decline.

Fashion retail investors have better options than The Gap. Shop around before hitting the buy button.

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This article is commentary by an independent contributor. At the time of publication, the author held stock in Amazon.

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