Although the no-moat retailer posted a comparable sales increase after a string of declines, we think the shares are fairly valued today.
ended a multiquarter string of comparable sales declines, stating that November and December holiday comparable sales increased 2%. Growth was driven by strength at Gap and Old Navy, where December comparable sales increased 1% and 12%, respectively. Although comparable sales growth is tracking ahead of our fourth-quarter expectation of a 2% decline, we think some of this growth likely came at the expense of promotional activity (in line with Macy’s and L Brands’ commentary). Therefore, we see little change to our $1.93 2016 adjusted EPS estimate, which is already in line with updated management guidance (calling for adjusted EPS to be modestly above the high end of the previous adjusted guidance range of $1.92). We are also maintaining our $25 fair value estimate and view shares as fairly valued at current levels.
Bridget Weishaar is a senior equity analyst for Morningstar.
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