* June same-store sales flat, below consensus of +3.4
* Analysts pause to assess back-to-school strategy
* Shares tumble 10 pct, may attract long-term buys
* Gap closes down 7.6 pct on New York Stock Exchange
By Alexandria Sage
SAN FRANCISCO, July 8 Gap Inc's (GPS.N)
disappointing June sales led investors to do a double-take in
assessing the clothing retailer's prospects.
The company known for selling both high and low-priced
casual styles has tried to extricate itself from a years-long
slide in sales, while improving styles and boosting profit
On Thursday, it surprised investors by reporting flat
comparable store sales in June, sending its shares down as much
as 10 percent and adding to pressure to get the next big
selling season right when fall and back-to-school shopping
starts up later this summer. They closed $1.50 lower at
"The whole reason to like Gap -- we thought they had good
momentum on the top line," said KeyBanc Capital Markets analyst
Ed Yruma, who rates the shares a "buy."
"I don't want to say we've lost our enthusiasm, but we have
to watch this closely. Obviously, the sales performance in the
month was weak."
Wall Street had expected Gap sales to rise 3.4 percent --
not an ambitious goal when compared with the company's 10
percent sales slide in June 2009 -- but it proved to be among
the weakest retail performances for the month. [ID:nN07207305]
Gap said same-store sales fell 3 percent at Gap stores,
rose 6 percent at Banana Republic and were flat at Old Navy,
calling June "a difficult month with lighter traffic than we
The focus now moves to Gap's fall season, where success is
tied to traffic-driving campaigns, cleared-out summer
merchandise and tight inventory levels.
Since taking helm nearly three years ago, Chief Executive
Glenn Murphy has focused on narrowing profit margins and
streamlining operations, but he has recently been more vocal
about improving top-line performance and gaining market share.
Under the Gap brand's head designer, Patrick Robinson, the
company is trying to overhaul iconic looks that put it at the
forefront of casual American style for decades.
If its newest fashions do not resonate with shoppers,
unsold fall merchandise could compound a profit margin squeeze
caused by clearing out June's excess inventory.
"Until I see the fall campaign for Gap, which apparently is
going to be based on a black pant program ... I wouldn't be
aggressively buying positions in Gap," said Needham & Co
analyst Christine Chen.
She recommended Urban Outfitters Inc (URBN.O), explaining
that the operator of the Urban Outfitters and Anthropologie
chains is "at very early stages" and still expanding.
Gap shares are down 13 percent this year compared with a 5
percent drop for the Standard and Poor's retail index .RLX.
By contrast, the shares of Limited Brands Inc LTD.N,
which has a comparable number of stores and was one of the best
retail performers on Thursday, are up nearly 26 percent. The
shares of another June same-store sales winner, Aeropostale Inc
ARO.N, which caters to teens, are up 25 percent.
"For a long-term investor we think today is a good entry
point, but we think there are not a lot of catalysts in the
medium term," Yruma said.
Of 31 analysts polled by Thomson One Analytics, 15 rated
shares "hold," while 14 had a "buy" or "strong buy" rating on
Gap shares. Two analysts held an "underperform" rating.
Patty Edwards, founder of wealth management firm Storehouse
Partners, said Thursday's price dip for Gap shares still did
not give her enough confidence to invest.
"I just don't see a catalyst for them doing better unless
their back-to-school fall holiday outlook is absolutely
spectacular," Edwards said. "There are better management teams
and better products out there."
She cited teen retailer Aeropostale and department store
Nordstrom Inc (JWN.N) as two of the retailers who fit those
Although Gap has had its best success in turning around its
lower-cost, family-centered Old Navy chain, its namesake Gap
chain has struggled for the right fit as it revamps its
trademark jeans and khakis.
Occasionally Gap has "flashes where they get it right,"
Edwards conceded of the clothes, but said improvements have
"They just have no point of view," she said. "They are
stuck in this environment of mediocrity right now."
(Additional reporting by Brad Dorfman and Emily Stephenson in
Chicago; editing by Michele Gershberg and Andre Grenon)