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Stock Analyst Update

Continue to Avoid Gap Shares

Wait for evidence the retailer has a turnaround in place.


Gap's (GPS) problems continue to worsen, hurt by horrible results at its Old Navy division and several recent management mistakes. Although the shares are more than 60% off their 52-week high, investors would be wise to hold off on buying the stock until evidence that a turnaround is underway.

After the close of trading Wednesday, Gap reported sales results for August that were significantly below expectations. Same-store sales, or sales at stores open more than a year, declined 14% from the year-earlier month. The Old Navy division, the catalyst behind Gap's outstanding results in the mid- to late 1990s, has become an albatross around the company's neck. Same-store sales at Old Navy sank 25% in the month, hurt by poor inventory planning and fashion offerings that didn't appeal to teenage shoppers.

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