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1. Company Snapshot

1.a. Company Description

The Gap, Inc.operates as an apparel retail company.The company offers apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands.


Its products include denim, tees, fleece, and khakis; eyewear, jewelry, shoes, handbags, and fragrances; and fitness and lifestyle products for use in yoga, training, sports, travel, and everyday activities for women and girls.The company offers its products through company-operated stores, franchise stores, Websites, third-party arrangements, and catalogs.It has franchise agreements with unaffiliated franchisees to operate Old Navy, Gap, Athleta, and Banana Republic stores and websites in Asia, Europe, Latin America, the Middle East, and Africa.


As of December 31, 2021, the company had 2,835 company-operated stores and 564 franchise stores.It also provides its products through e-commerce sites.The Gap, Inc.


was incorporated in 1969 and is headquartered in San Francisco, California.

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1.b. Last Insights on GPS

The recent stock performance of The Gap, Inc. was negatively impacted by a halt in trading due to pending news, likely related to its upcoming earnings release. The company's strong Q2 2024 earnings, which exceeded sales expectations with a 5% year-over-year increase in net sales to $3.7 billion, and an upgrade in forecasts, were overshadowed by the halt in trading. Additionally, the company's focus on reinforcing its brand relevance and expanding market share through marketing and innovation may not be enough to offset the challenges it faces in the competitive retail landscape.

1.c. Company Highlights

2. Gap Inc. Posts Strong Q1 Earnings, Driven by Old Navy and Gap Brand Momentum

The Gap, Inc. delivered a solid first quarter, exceeding expectations with a 2% increase in comparable sales and a 24% rise in earnings per share (EPS) of $0.51, well above the consensus estimate of $0.40. Net sales also grew by 2%, supported by strong performances from Old Navy and the Gap brand, which saw comp sales increases of 3% and 5%, respectively. Gross margin expanded by 60 basis points to 41.8%, while operating margin improved by 140 basis points to 7.5%. The company ended the quarter with a robust $2.2 billion in cash and short-term investments, underscoring its financial health.

Publication Date: Jun -02

📋 Highlights
  • Strong Comp Sales Growth: Comparable sales rose 2%, with Old Navy up 3% and Gap up 5%, marking six consecutive quarters of positive comps.
  • Gross Margin Expansion: Gross margin expanded by 60 basis points to 41.8%, driven by robust sales and cost management.
  • E-commerce Growth: E-commerce penetration grew to 39% of total sales, with The Gap, Inc. ranking as the number one apparel e-commerce business in the US.
  • Improved Operating Margin: Operating margin improved by 140 basis points to 7.5%, supported by sales growth and SG&A efficiency.
  • Tariff Mitigation Efforts: The company reduced sourcing from China to less than 3% and estimates tariffs will impact operating income by $100-150 million in 2025.

Brand Performance and Strategic Initiatives

Old Navy continued to outperform, gaining market share across all income cohorts and driving growth through successful product launches such as Studio Smooth and TrendRight collections. The brand is also enhancing customer experience through AI-powered RFID technology and plans to open a new flagship store in New York in 2026. The Gap brand saw significant progress, particularly in women's apparel and denim, supported by collaborations like Harlem's Fashion Row and Dohen. However, Athleta faced challenges, with an 8% decline in comps as it works to reset its brand and assortment strategy. Banana Republic showed signs of improvement with flat comps, benefiting from a focus on classics and the White Lotus collaboration.

Financial Highlights and Outlook

The company reaffirmed its fiscal 2025 outlook, expecting net sales growth of 1% to 2% and operating income growth of 8% to 10%, excluding tariff impacts. Tariffs are projected to reduce operating income by $100 million to $150 million, primarily in the second half of the year. Management emphasized efforts to mitigate these impacts through sourcing diversification, with China now representing less than 3% of sourcing, down from 10% in 2024. The company also plans to double its US-grown cotton sourcing in 2026.

Valuation Implications

With a P/E ratio of 9.52 and an EV/EBITDA of 7.36, Gap Inc. appears reasonably valued given its strong execution and brand momentum. The company's free cash flow yield of 10.46% and dividend yield of 2.76% further highlight its attractiveness to investors seeking both growth and income. While tariffs and Athleta's challenges remain headwinds, the company's strategic focus and operational discipline position it well for long-term growth.

3. NewsRoom

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Amazon Closing The Gap In AI Race: Analysts

Dec -03

Source: benzinga.com

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Payments Modernisation: Gap Between Confidence and Readiness Among Industry Leaders Widens, ACI Worldwide Study Finds

Dec -02

Source: businesswire.com

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Gap’s beauty push, tight cost control seen boosting long-term growth

Nov -26

Source: proactiveinvestors.com

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Capitalize on the Widening Uranium Supply/Demand Gap

Nov -25

Source: etftrends.com

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The Gap: Comparable Sales Momentum Is Building - Strong Buy

Nov -24

Source: seekingalpha.com

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Tanger CEO: Gap expected to be a huge winner this holiday season

Nov -24

Source: youtube.com

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Gap bets on beauty: Inside the retailer's push beyond apparel

Nov -21

Source: foxbusiness.com

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Top Stock Movers Now: Ross Stores, Gap, Intuit, Oracle, and More

Nov -21

Source: investopedia.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (7.61%)

6. Segments

Old Navy Global

Expected Growth: 9.03%

Old Navy's 9.03% growth is driven by its affordable and trendy offerings, successful marketing campaigns, and strategic store expansions. The brand's focus on denim and casual wear resonates with budget-conscious consumers, while its online presence and loyalty programs contribute to increased sales and customer retention.

Gap Global

Expected Growth: 4.65%

Gap Global's 4.65% growth is driven by effective marketing strategies, increased online sales, and successful brand revamps. The company's focus on digital transformation, including investments in e-commerce and mobile apps, has enhanced customer experience and driven sales. Additionally, Gap's efforts to improve product quality, fit, and style have resonated with customers, leading to increased brand loyalty and repeat business.

Banana Republic Global

Expected Growth: 4.83%

Banana Republic Global's 4.83% growth is driven by strategic brand positioning, effective marketing campaigns, and a strong e-commerce platform. Additionally, the brand's focus on premium quality, stylish, and comfortable clothing resonates with its target audience, leading to increased brand loyalty and repeat business.

Athleta

Expected Growth: 10.33%

Athleta's 10.33% growth is driven by increasing demand for athleisure wear, successful marketing campaigns targeting health-conscious women, and strategic expansion into new markets. Additionally, the brand's focus on sustainability, inclusivity, and digital transformation has resonated with consumers, leading to increased brand loyalty and sales.

Other

Expected Growth: 7.3%

The 7.3% growth in Other segment from The Gap, Inc. is driven by strong demand for Hill City, a men's activewear brand, and a significant increase in sales from the company's loyalty program. Additionally, the growth is attributed to the success of the company's e-commerce platform, which has led to higher online sales.

7. Detailed Products

Casual Wear

Gap's casual wear includes a wide range of clothing items such as t-shirts, jeans, trousers, and shorts for men, women, and kids.

Dresses

Gap offers a variety of dresses for women and girls, including party dresses, work dresses, and casual dresses.

Denim

Gap is famous for its high-quality denim products, including jeans, jackets, and shorts for men, women, and kids.

Activewear

Gap's activewear collection includes yoga pants, tops, and outerwear for men and women who lead an active lifestyle.

Maternity Wear

Gap offers a range of maternity clothes, including tops, bottoms, and dresses designed for expectant mothers.

Kids' Clothing

Gap Kids offers a wide range of clothing items, including casual wear, dresses, and outerwear for boys and girls.

Baby Clothing

Gap's baby collection includes adorable clothing items, such as onesies, sleepers, and footed rompers.

Shoes and Accessories

Gap offers a variety of shoes, hats, scarves, and belts for men, women, and kids.

8. The Gap, Inc.'s Porter Forces

Forces Ranking

Threat Of Substitutes

The threat of substitutes for The Gap, Inc. is medium due to the presence of alternative clothing retailers and online shopping platforms. However, Gap's strong brand recognition and loyalty program help to mitigate this threat.

Bargaining Power Of Customers

The bargaining power of customers is high due to the ease of switching to competitors and the availability of substitutes. Gap's customers have significant bargaining power, which can lead to downward pressure on prices.

Bargaining Power Of Suppliers

The bargaining power of suppliers is low due to Gap's large scale of operations and its ability to negotiate favorable prices with suppliers. Gap's suppliers have limited bargaining power, which helps to maintain profit margins.

Threat Of New Entrants

The threat of new entrants is low due to the high barriers to entry in the clothing retail industry, including significant capital requirements and the need for established supply chains and distribution networks.

Intensity Of Rivalry

The intensity of rivalry is high due to the competitive nature of the clothing retail industry, with many established players competing for market share. Gap faces intense competition from rivals such as H&M, Zara, and Uniqlo.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 44.59%
Debt Cost 3.95%
Equity Weight 55.41%
Equity Cost 15.61%
WACC 10.41%
Leverage 80.46%

11. Quality Control: The Gap, Inc. passed 4 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Stock-Card
Urban Outfitters

A-Score: 5.4/10

Value: 6.3

Growth: 6.9

Quality: 6.1

Yield: 0.0

Momentum: 9.5

Volatility: 3.3

1-Year Total Return ->

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Stock-Card
Gap

A-Score: 5.0/10

Value: 6.6

Growth: 4.7

Quality: 5.2

Yield: 7.0

Momentum: 5.0

Volatility: 1.3

1-Year Total Return ->

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Stock-Card
Carter's

A-Score: 4.5/10

Value: 7.1

Growth: 3.8

Quality: 4.5

Yield: 8.0

Momentum: 0.0

Volatility: 3.7

1-Year Total Return ->

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Stock-Card
American Eagle Outfitters

A-Score: 4.4/10

Value: 6.6

Growth: 4.6

Quality: 4.5

Yield: 6.0

Momentum: 2.5

Volatility: 2.0

1-Year Total Return ->

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Stock-Card
Abercrombie & Fitch

A-Score: 4.3/10

Value: 7.1

Growth: 8.3

Quality: 6.8

Yield: 0.0

Momentum: 0.5

Volatility: 3.0

1-Year Total Return ->

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Stock-Card
Boot Barn

A-Score: 4.2/10

Value: 2.3

Growth: 8.0

Quality: 5.9

Yield: 0.0

Momentum: 5.0

Volatility: 4.0

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

24.55$

Current Price

24.55$

Potential

-0.00%

Expected Cash-Flows