Ahead of the Bell: Janney analyst upbeat on Gap

NEW YORK -- Gap is doing a better job of managing how much merchandise it keeps in stores, and the retailer has improved its products, drawing more customers, a Janney analyst said Monday as she raised her earnings estimate for the chain.

In a note to investors, analyst Adrienne Tennant said that based on her research, markdowns are at "controlled levels."

In addition to its namesake stores, Gap Inc. operates Old Navy, Banana Republic and Athleta. The San Francisco-based company has been struggling to reclaim its fashion status, and is now focusing on key merchandising categories in each of the chains. At Gap, for example, it's focusing on denim products while at Banana Republic it's been zeroing in on suits.

Net income rose 29 percent in the quarter ended in July, suggesting that a comeback could be taking hold. Profit had been flat in the company's fiscal first quarter, which ended in April, and had dropped 31 percent for the year that ended in January. Analysts polled by FactSet predict that net income will grow by about a third in the current quarter, which ends in October.

Tennant said in her note Monday that signs of a turnaround in U.S. stores could offset weakness in the international business.

But she also said that Old Navy's new global brand president, Stefan Larsson, should bring fresh ideas that have an impact on the brand in 2013 and beyond.

She raised her earnings estimate for the third quarter, which ends in October, by 2 cents to 55 cents per share. Analysts, on average, expect profit of 54 cents per share.

Tennant has a "Buy" rating on the stock and a $44 price target.

Shares of Gap closed at $36.10 Friday. They have nearly doubled in 2012.