Shares of The Gap Inc. (NYSE:GPS) fell 3.8% on Tuesday after the company reported poor comparable store sales for the first quarter of 2015, indicating GPS still doesn’t have a hold on what fashion trends consumers are looking for.
Same-store sales declined by 4% for the first three months of 2015, compared to a 1% drop a year ago. April was particularly harsh (again), with sales falling 12% during the month, (and falling 9% in April 2014).
In April, both Gap Global and Banana Republic posted 15% revenue declines while Old Navy dropped 6%.
The weak sales performance has analysts estimating that GPS will post higher inventory figures for the first quarter, which is a key big metric retail stock investors use to determine the value of a company.
The low sales figures and possible higher inventory numbers suggest GPS stock will continue trending lower in the coming months. Investors need to remember that retail stocks typically ride waves as they catch or miss fashion trends changing. Simply looking at share price performance of fashion retailers can help investors see what part of the cycle a stock may be sitting in.
For example, back in 2012, GPS stock rose 73% in just one year, as the company was firing on all cylinders and really got it right with the hot fashion trends. But more recently, over the past two years, shares of GPS actually 24% while the S&P 500 is up 32%. Over the past 12 months, Gap stock is down 5% while the S&P 500 is up 13%.
GPS Isn’t the Only Retail Stock Struggling
Other fashion retailers such as Abercrombie & Fitch Co. (NYSE:ANF), American Eagle Outfitters (NYSE:AEO), or Ralph Lauren Corp (NYSE:RL) have had even tougher times. Over the past year, ANF is down 41%, RL has fallen 11%, but AEO is up 45%. The one-year picture indicates American Eagle Outfitters was one retailer who accurately picked what the fashion trends would be while the others missed the boat.
However, when we expand our view to five years, the chaos of the fashion cycle becomes apparent. AEO stock is only up 3% over that timeframe while RL is up 56%, ANF is down 44%, and GPS is higher by 73%. But, remember, Gap stock gained that much in 2012 alone, meaning it has effectively flatlined for the past two-and-a-half years.
These fashion retailers’ long-term stock performance highlights how a buy-and-hold strategy is very difficult with retail, especially if the goal is to outperform the market. Constantly changing fashion trends means there is no guarantee management can keep the ball moving after a hot year.
Furthermore, other outside factors such as gasoline prices and interest rates directly affect how much money consumers have to spend on clothing. On Wednesday, the Commerce Department reported that retail sales hardly moved in April, after falling 0.2% during the first quarter of 2015. Despite low unemployment, it appears consumers just aren’t willing to spend, opting instead to save money.
Even if you guess right on the fashion trends, there’s little you can do about consumers keeping their wallets closed.
My advice is to stay away from retailers all together. There is easier money to be made than almost-blindly picking who will going to be the big winner each and every year in an fickle, volatile industry.
As of this writing, Matt Thalman did not hold a position in any of the aforementioned securities. Follow him on Twitter at @mthalman5513.
