Yahoo! Finance named its first "Company of the Year" December 21 and it was none other than Gap (NYSE:GPS), one of the nation's largest specialty retailers. The financial website says it wasn't a clear-cut choice, but I would beg to differ. With the exception of Michael Kors (NYSE:KORS), there wasn't a better performer in specialty retail this past year. Looking ahead to 2013, I'll examine why Gap will continue to be a good bet in the coming year.

Guide To Oil And Gas Plays: We've got your comprehensive guide to oil and gas shales in North America.

International Expansion
Exactly one week before Christmas, Gap announced plans to open stand-alone stores in Brazil as part of its global expansion strategy. Partnering with Tudo Bom Comércio, it will begin opening stores in Sao Paulo in the fall of 2013. Brazil is the fifth largest country in the world and the largest economy in Latin America, so it makes sense for it to be operating there. Brazil will be its sixth Latin American country of operation. Expect big things out of Brazil. As for China, Gap CEO Glenn Murphy will oversee its expansion personally. That's how important the country is to its global efforts. At the end of 2011 it said that China could deliver $1 billion in revenue in the next three to four years. One year after the bold prediction; things are looking good.

In its third-quarter conference call, Murphy commented that its lifestyle brand, which competes directly with lululemon (Nasdaq:LULU), was doing well in all sorts of locations: street stores, malls, lifestyle stores and strip centers. With prices that are 13% lower than lululemon's, Athleta's 50 stores that will be open by the end of 2013 will likely take market share from the hugely successful lifestyle brand. Look for very strong sales from Athleta in the coming year. Within five years it will share the limelight with its other three main brands.

SEE: Bonkers Expectations May Still Be Lululemon Athletica's Biggest Challenge

North America
Poor old North America. Battered and beleaguered, it can do no right - until now. For the first nine months through the end of October, its North American revenues increased by 6% to $9.3 billion. That's only marginally lower than the 9% increase for its international sales growth. Leading the charge in North America is its namesake brand with 5% same-store sales growth in the first nine months of the year. Thanks to the opening of 20 Athleta stores in North America in the first three quarters of 2012, Gap's North American net store closings (openings minus closings) amounted to one solitary location. It's opening Athleta stores as fast or faster than its closing underperforming locations at its three main brands. Business actually looks very bright at home for the first time in a long time.

Its other ecommerce brand (shoes, etc.) is also transitioning into a bricks-and-clicks operation with the opening of its first full-scale retail location in the SoHo neighborhood of New York City in September 2012. While I doubt Piperlime will have the immediate success that Athleta stores have experienced to date, it does provide a good one-two punch for growth. In the first nine months of 2012, the combined sales of the two brands was $212 million, 30% higher year over year. Both originally online sales exclusively, the foray of its two newest brands into physical locations should provide customers with a better and more convenient shopping experience.

All five of its brands achieved online sales growth of at least 16% in the first nine months of the year led by the combined efforts of Piperlime and Athleta, followed closely by Banana Republic, Gap and Old Navy. At the end of October, online sales represented 12% of overall revenue, 200 basis points higher than in the first nine months of 2011. At this pace of growth, I'd expect online revenue to hit 20% by the end of fiscal 2016, making Gap that much more profitable.

SEE: 5 Scariest Scenarios For Today's Retail Investors

The Bottom Line
Wanting to be prepared for its international expansion, Gap realigned its operating segments in October so that all three of its main brands would have the global infrastructure in place to handle what comes its way. It also created a fourth segment that will foster innovation including the management of its digital strategy. For now, Athleta and Piperlime will be operated under its fourth leg, but expect Athleta to be rolled out on its own in three to five years.

Glenn Murphy's definitely thinking ahead. If he doesn't watch out, Gap just might be a repeat winner in 2013.

At the time of writing, Will Ashworth did not own any shares in any company mentioned in this article.

Related Articles
  1. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  2. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  3. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  4. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  5. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  6. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  7. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  8. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  9. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
  10. Investing News

    Alphabet Earnings Beat Expectations (GOOGL, AAPL)

    Alphabet's earnings crush analysts' expectations; now bigger than Apple?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
Trading Center