Why Gap (GPS) Is Up Today

NEW YORK (TheStreet) -- Gap  (GPS) was rising 6.08% to $42.13on Friday after the apparel retailer announced sales in January that beat expectations.

The company, which owns Gap, Banana Republic and Old Navy, said sales in Gap stores open at least one year increased 1% in January, while analysts expected a decline of 1.3%, according to Thomson Reuters. By that same measurement, Old Navy store sales rose 4%, while Banana Republic sales dropped 10%.

Gap said it expects earnings per share of 65 cents to 66 cents for the fourth quarter, surpassing analysts' expectations of 60 cents. 

The company reported net sales of $899 million in January, down from $1.13 billion sales in the same five-week period last year; January 2014 and the latest fourth quarter had one less week than last year's based on the calendar that retailers used. Net sales for the fourth quarter were $4.58 billion compared to $4.73 billion a year earlier.

"We're pleased to deliver a strong finish to the year, with another month and quarter of comp sales growth," said Chairman and CEO Glenn Murphy in the company's statement.

Must Read: 5 Stocks Advancing The Services Sector

TheStreet Ratings team rates GAP INC as a "buy" with a ratings score of B+. TheStreet Ratings Team has this to say about its recommendation:

"We rate GAP INC (GPS) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, increase in stock price during the past year and growth in earnings per share. We feel these strengths outweigh the fact that the company shows weak operating cash flow."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Despite its growing revenue, the company underperformed as compared with the industry average of 7.3%. Since the same quarter one year prior, revenues slightly increased by 2.9%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • The current debt-to-equity ratio, 0.42, is low and is below the industry average, implying that there has been successful management of debt levels.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Specialty Retail industry and the overall market, GAP INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • The stock has risen over the past year as investors have generally rewarded the company for its earnings growth and other positive factors like the ones we have cited in this report. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • GAP INC has improved earnings per share by 14.3% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, GAP INC increased its bottom line by earning $2.32 versus $1.57 in the prior year. This year, the market expects an improvement in earnings ($2.67 versus $2.32).
  • You can view the full analysis from the report here: GPS Ratings Report

More from Markets

Global Stocks Rebound But US-China Trade War Concerns Keep Investors on Edge

Global Stocks Rebound But US-China Trade War Concerns Keep Investors on Edge

REPLAY: Jim Cramer on How to Navigate the Stock Market Amid Tariff Worries

REPLAY: Jim Cramer on How to Navigate the Stock Market Amid Tariff Worries

Global Markets Hit Hard; AMC Entertainment Sells Stake in Ad Unit -- ICYMI

Global Markets Hit Hard; AMC Entertainment Sells Stake in Ad Unit -- ICYMI

CVS, Walgreens and Citigroup: Cramer's 'Off the Charts'

CVS, Walgreens and Citigroup: Cramer's 'Off the Charts'

Jim Cramer: 4 Stocks Could Get Throttled By a 'Knock Down Drag Out' With China

Jim Cramer: 4 Stocks Could Get Throttled By a 'Knock Down Drag Out' With China