Gap (GPS) Stock Gains Pre-Market After Announcing Plan to Close 175 Stores

NEW YORK (TheStreet) -- Gap (GPS) shares are up 0.24% to $38.29 in pre-market trading on Tuesday, recovering from the dip it experienced in after-hours trading yesterday following its announcement that it is closing 175 of its stores across the country amid flagging sales.

The San Francisco-based clothing retailer also announced that it will cut 250 jobs at its corporate headquarters.

The closing of the stores will result in an annual loss in revenue of about $300 million and the company expects to take a one time charge of $160 million related to the closing process.

The company also said that it expects to save $25 million annually following the closings.

Gap said 140 of the stores will be closed by the end of this fiscal year with the remaining stores to be shuttered incrementally over the next few years.

"These decisions are very difficult, knowing they will affect a number of our valued employees, but we are confident they are necessary to help create a winning future for our employees, our customers and our shareholders," said Gap Global President Jeff Kirwan.

Following the closures, the company will have 800 store locations in North America with about 1,600 company-operated and franchise locations spread across 50 countries.

TheStreet Ratings team rates GAP INC as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate GAP INC (GPS) a BUY. This is driven by a few notable strengths, 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 largely solid financial position with reasonable debt levels by most measures, notable return on equity, reasonable valuation levels and expanding profit margins. We feel its strengths outweigh the fact that the company has had sub par growth in net income."

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

  • The current debt-to-equity ratio, 0.47, is low and is below the industry average, implying that there has been successful management of debt levels.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. 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.
  • 41.84% is the gross profit margin for GAP INC which we consider to be strong. Regardless of GPS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 6.53% trails the industry average.
  • GAP INC' earnings per share from the most recent quarter came in slightly below the year earlier quarter. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, GAP INC increased its bottom line by earning $2.88 versus $2.75 in the prior year. For the next year, the market is expecting a contraction of 3.6% in earnings ($2.78 versus $2.88).
  • You can view the full analysis from the report here: GPS Ratings Report

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