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Stock Analyst Update

It's Too Early to Call a Gap Turnaround

The worst may be over, but the long-term outlook is still clouded.

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What Happened?
Gap (GPS) reported Wednesday that September same-store sales, or sales at stores open more than a year, declined 8% compared with the prior-year period. Total sales rose 12% as a result of new store openings. Inventory levels ended the month above plan, although sales at the struggling Old Navy stores picked up a bit from the previous month. All four of Gap's divisions--Banana Republic, domestic Gap stores, Old Navy, and International--produced negative same-store sales during the month.

What It Means for Investors
We remain cautious on the company's outlook, and think investors should continue to take a wait-and-see approach to Gap's shares. Although the company's Old Navy division showed marginally better results in September, markdowns at Gap and Old Navy stores were the highest in more than 10 years, causing profit margins to be squeezed.

Mark Sellers does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.