While fashion is difficult to predict, the retail apparel market has seen one of its best retailers continue to grow and prosper. The Gap is not on the list of Dividend Aristocrats because it hasn't increased its dividend each year for 25 years but it has increased its dividend for the last 5 years. It's a company that's been around continually since 1969 (45 years) selling men's, women's and children's clothing. Today it sells apparel at multiple price points through its Gap, Banana Republic, Old Navy, Piperlime, Athleta and INTERMIX stores and websites.
- The Gap is made up of the top names in apparel retailing - Gap, GapKids, babyGap, GapMaternity, GapBody, Banana Republic, Old Navy, Piperlime, Athleta and INTERMIX.
- The Gap is blending its online and off line shopping by offering customers the option to reserve in-store, find in-store, and ship from store.
- One year total return for this investment is expected to be almost 15%
- Dividend growth rates have been increasing at the rate of 20% but should stabilize near 10% going forward.
The Gap, Inc. (GPS) operates as an apparel retail company worldwide. It provides apparel, accessories, and personal care products for men, women, and children under the Gap, Banana Republic, Old Navy, Piperlime, Athleta, and Intermix brands. Its products comprise maternity apparel; loungewear, sleepwear, intimates, and active apparel for women; handbags, shoes, jewelry, personal care products, and eyewear for men and women; women’s apparel, footwear, and accessories for sports and fitness activities, including crossover apparel and casualwear; and luxury and contemporary products. The company also has franchise agreements with unaffiliated franchisees to operate stores in Asia, Australia, Eastern Europe, Latin America, the Middle East, and Africa under the Gap, Banana Republic, and Old Navy brands. Gap, Inc. offers its products through company-operated stores, franchise stores, e-commerce sites, and catalogs. As of March 20, 2014, it had approximately 3,100 company-operated stores and 350 franchise stores in 90 countries. The Gap, Inc. was founded in 1969 and is headquartered in San Francisco, California. (Daily Chart) (Weekly Chart)
3 May 2014
1yr Target $44.28
1yr Cap Gain 12.72%
1yr Tot Return 14.96%
3yr DGR 20.28%
5yr DGR 15.53%
Payout Ratio 25.54%
EPS (ttm) $2.74
EPS next yr $3.29
The Gap has also experienced strong growth in its internet direct sales to the public. In the last few years the internet business has grown at an average rate of 20% annually and now comprises almost 15% of the company's total sales. As the company blends its online and off line strategies, customers will have multiple options of reserve in-store, find in-store, and ship from store. This multi-faceted sales channel fits well with the demands and the lifestyle of the modern retail shopper.
Gap Inc's mobile apps and mobile-optimized websites have also played a vital role in strengthening its Direct business. It has also enabled the company to not only offer a greater variety of merchandise but to enhance delivery responsiveness and increase store traffic as well.
Given the company's ability to retail at all levels of the economy from casual to luxury and the company's ability to sell through multiple channels, I expect revenues, earnings and dividends to continue to increase into the future.
The fundamentals identify this company as a potential candidate for ownership. Even though revenues and earnings are intertwined with the overall economy, they're moving in the right direction. Management has also shown their concern for shareholders by keeping the payout ratio low and the dividend payments increasing. But from a technical perspective, the stock is currently trading sideways and since I'm able to identify its upper and lower limits, I see no reason to buy this stock until it sits on its lower limit.
I like the 2.24% dividend growing at 3-4 times the rate of inflation and the stock price growing at 12% a year. I plan to establish a small and growing position in this company when and if the stock retreats to the upper 30s once again.
Good Luck and Good Trading.