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Non-Tech : The Gap -- Ignore unavailable to you. Want to Upgrade?

To: LEE SWIFT who wrote (7)	3/20/1998 3:58:00 PM
From: John T. Hardee	Read Replies (2) \| Respond to of 189

Daily commentary updated for March 20, 1998 --Are we to see a breakout-- Up nearly 30% year-to-date, Gap Inc. (GPS 45 3/4) has helped lead the retail industry's resurgence on Wall Street. Given strong momentum, relatively decent fundamentals and an aggressive expansion plan, Briefing contends that GPS is well positioned to extend its gains over the near- to intermediate-term. Strong Economy = Strong Sales Bolstered by the robust US economy, and by warmer than expected winter weather, retail sales figures for the first couple months of this year have been impressive. And few companies have enjoyed better numbers than Gap. January 98 sales were up 33% over year-ago levels on a 15% increase in the number of stores... Same-store sales rose by 13% versus 8% in the same period a year ago. February's numbers were just as good... Total sales last month rose 36% on a 15% increase in the number of stores, with comparable store sales up 14% versus no increase one year ago. Early indications are that March will also be a good month for the nation's retailers. Equally important, each of its brand names - "Banana Republic," "Old Navy," "GapKids," "babyGap" and "Gap" is exhibiting strength. Building a Consumer Powerhouse Gap is in the process of leveraging its high brand awareness into an international consumer powerhouse. Expansion plans include opening 300 new stores in CY98. 200 stores are planned to open in the UK over the next two years, with another 55 planned for other European countries and Asia. In addition, the company will unveil a new "Banana" Republic catalogue . Plans to update older stores and to expand its online business should also help bolster the bottom line over the long-term. Valuations In light of year's gains it should come as no surprise that the stock is no longer cheap. But at 29x estimated FY99 earnings and 25x projected FY00 results, company's numbers are in line with the industry and its historic norms, and only moderately above the market levels. The latter variation is explained by Gap's superior long-term growth projections. Whereas the S&P 500 is expected to grow earnings by average annual rate of 7.2% over the next 5 years, the street projects the Gap's growth at 17%, or 136% above the market rate. Briefing contends that in the current bullish environment GPS warrants a PEG of close to 2.0. Based on this assumption we see upside potential to the 54-56 area over the next 6- to 12-months.