Gap Inc. (GPS), a premier international specialty retailer, has reported a mixed bag of same-store sales in September with strong performance in the Old Navy division and relatively weaker ones in its other segments.

Same-store sales measure sales at stores which have been open for at least a year, and are a widely used metric to gauge retailer performance as they measure growth at existing stores rather than at the newly opened ones. Overall September same-store sales of Gap decreased 1% compared to an 11% decline in the year-ago period.

By segment, same-store sales in Old Navy increased 13%, decreased 12% in Banana Republic, decreased 8% in the Gap division, and declined 4% in the international division. While same-store sales fell in almost all segments, the only silver lining was the largest same-store sales increase in over five-and-a-half years in the Old Navy segment.

Total sales of Gap for the five-week period ended Oct 3, 2009, was $1.33 billion compared to $1.34 billion in the corresponding period in the previous year. For the first nine months of 2009, total sales of the company were $8.82 billion compared to $9.36 billion in the same period in 2008.

Gap offers a diverse range of clothing, accessories, and personal care products for men, women, children and babies. Its flagship brands include Gap, Banana Republic, Old Navy, Piperlime and Athleta. Gap is the leading player in the highly fragmented specialty retail sector. The company has a strong balance sheet with adequate liquidity and no outstanding debt.

We maintain our Outperform recommendation on the stock.

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