Is Old Navy's comeback for real? Of course not

The Wall Street Journal is even more glowing in its praise (subscription required): "The bargain brand, which accounted for roughly 41% of Gap's sales last year, is expected to be the main driver of the apparel giant's quarterly earnings on Thursday. ... Returning Old Navy to its roots was the central theme of Gap's remaking of the brand. Executives brought back categories its designers had decided were stale, such as the brand's fleece category and T-shirts with the Old Navy logo."

The Old Navy turnaround story is nice: Same-store sales rose 10% in the third quarter, the first increase following twenty straight quarters of declining sales?

But is the turnaround real? No, it isn't. It's still Old Navy, and the increase in sales is being driven, I would argue, by entirely cyclical trends. Aeropostale (ARO), a similarly affordable but infinitely cooler brand, announced earlier this month that it expected its third quarter net income to 43% to 44% year over year.

Aeropostale grew its same-store sales 3% in October of 2009, compared with a 1% increase in the same period of 2008. Old Navy managed a 10% increase in 2009 -- but that was buoyed by an easy comp: an 18% decrease in the same period of 2008.

In an economy as bad as this one, soup kitchens might very well take market-share away from Spago -- but that really doesn't have anything to do with the long-term trend. Old Navy's years of decay have rendered it at a substantial competitive to disadvantage to hipper affordable retailers like Aeropostale, H&M, Forever 21, and even Target (TGT). While the market for budget clothing is growing, Old Navy's turnaround will look like a success. But when the economy turns around and people start flocking back to Abercrombie & Fitch (ANF), the wheels will fall off.

If Old Navy is the closest thing to a savior Gap Inc. (GPS) has, investors might want to look elsewhere.