Gap Inc: Kiss the GPS Stock Rally Goodbye

Forget about any rebound play in shares of Gap Inc (NYSE:GPS) now that GPS’s vaunted turnaround lasted for all of about a month.

Gap Inc: Say Goodbye to the Recent GPS Stock RallyIt’s almost comical in retrospect that hopeful investors thought June’s first same-store sales increase in more than a year marked the beginning of a new era for GPS stock. Indeed, Gap stock went on to rise nearly 12% over the last month.

And then came July, when all of Gap’s longstanding problems with fashion, demographic trends and declining mall traffic came back to whack results once again.

Same-store sales — a critical measure of retail health — fell more than 4% last month. Analysts were looking for a pullback of just 1%. Furthermore, the sales slump was felt across all three Gap nameplates.

Gap stores suffered a sales drop of 4% in July. Old Navy was flat and Banana Republic’s same-store sales fell 15%.

GPS: Here We Go Again

As the leading month for back-to-school shopping, investors have to be concerned that GPS is not only going to blow the current selling season, but the holiday period as well. As Stifel analysts wrote in a note to clients:

“Unfavorable weather, soft traffic trends and uninspiring product assortments contributed to the disappointing results. The prolonged underperformance at the Gap businesses despite management’s best efforts has undermined our confidence and limited our visibility for improvement.”

GPS stock was up 3.7% for the year-to-date before Tuesday’s selloff to trail the broader market by 3 percentage points. The longer-term chart is even worse, with Gap stock down 32.5% in the last 52 weeks.

The stock’s strong move off a mid-May low made it a great bet over the last three months, but not anymore. Any bid predicated on GPS developing sales momentum heading into fall is likely to dry up now.

As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.

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