The Gap Inc. (GPS) and Fast Rumored to Talk Merger

Who should be worried
This isn’t the first time that rumors about Fast and Gap have come out, but it is the first time since Gap’s turnaround began last year. That means that the combined companies would now be a different kind of force to be reckoned with, and competitors should be on the lookout for the new beast. Companies such as Lululemon Athletica inc. (NASDAQ:LULU) and Guess?, Inc. (NYSE:GES) are both working toward international growth, and new blood at Gap would be bad news.

Lululemon is planning to expand its Asian and European showroom presence over the next two years, building new distribution centers in Hong Kong and Rotterdam. One of the company’s largest strengths in North America has been its speed to market. Lululemon was the first high-end yogawear place in town. But Gap’s Athleta brand has been growing, and while the American war may be won, the international yoga battle rages on. If Gap can get into Asia and Europe with Athleta faster than lululemon, it can take a big step toward international market dominance.

For Guess?, the merger is less of an issue in Europe, where the denim retailer already earns about 40% of its revenue — but Asia is up for grabs. In its last fiscal year, Guess? only earned 10% of its total revenue in Asia, and management has worried about Asian growth due to larger concerns about the economy. If Gap could swing in with its extensive denim lineup, Guess? would be in a bad place.

The bottom line
As I said, this isn’t the first time the Fast-Gap rumor has come up, but it highlights where both companies have potential to grow. Uniqlo has proven its worth around the world, but with just five stores in the U.S., it has a lot of room to grow. Gap is working out the other way and can really push up revenue with a renewed focus on international growth, which management put off to one side last year. That growth could mean a whole new kick for Gap’s stock, and I’m looking for signs of that by the middle of this year.

The article Gap and Fast Rumored to Talk Merger originally appeared on Fool.com and is written by Andrew Marder.

Fool contributor Andrew Marder has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Guess? It also recommends lululemon athletica.

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