Merchandise misses and a shopper base that would rather spend money on the latest tech gadgets have caused sales to slump at the Gap brand this year. But Sterne Agee on Tuesday said it thinks the namesake label—and its parent company—are about to turn a corner, naming the retailer its best idea for the second half.
Analyst Ike Boruchow wrote in a note to investors that leaner inventories, easier sales comparisons during the back half of the year, and a better assortment at Gap will act as key drivers. Favorable weather should also increase demand for the company's fall merchandise, while cheaper cotton prices, which affect Gap more than other retailers, will benefit its bottom line.
"Their business is getting better," said Boruchow, who has a $52 price target and a "buy" rating on the stock. "I think it's compelling."
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For one, Gap's sales comparisons get "meaningfully easier" starting in the third quarter, Boruchow said. While it's been up against mid-single digit comparable-store sales gains over the past 12 months, it recorded same-store sales growth of just 1 percent in the back half of 2013.