Analyst Touts 'Overweight' Gap

The report's title, '04 Buybacks Are Just The Beginning," suggests that the San Francisco-based company's stock repurchase program, launched in the fall, is just one of a number of positive financial signs for the company. The Lehman report is the latest in a series of laudatory outlooks on the company of late, including an upgrade of the company's debt by the Fitch ratings service and generally upbeat quarterly financial results.

Black's research report, based in part on a meeting with Gap officials in San Francisco, notes that the company's stock repurchase plan began in October with a $500 million repurchase program and continued with an additional $250 million in November and another $250 million in December. The repurchases are part of a "strategy for boosting shareholder returns above the market rate," Black comments. Besides the stock repurchases, Black expects to see dividend hikes in light of Gap's cash reserves, which exceed $3 billion.

The report foresees modest square footage growth in 2005 and 2006, and it forecasts a 2% same store sales increase for the Gap US division in January, versus a 6 comp increase last year. It says the company faces a tough challenge if it wants to improve on last year's spring comps, which measured 6% in March and a 5% in April. The challenge to beat last year's comps will be even greater this spring at Banana Republic, which is up against a 30% comp increase in February last year and a 25% comp increase in March.

The Fitch debt rating upgrade, reported on GlobeSt.com/Retail, cited the company's operating efficiencies as well as its reduction of debt. The Fitch upgrade cited Gap's "success at improving its merchandising and store efficiencies," and pointed out that "Gap has utilized its substantial cash flow to significantly reduce debt."