A sign is posted in front of the GAP flagship store
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Gap is up more than 6% following an upgrade from JPMorgan saying the mall staple is worth buying ahead of its earnings report—scheduled for Tuesday—especially because investors can get its flagship Gap brand basically for free.
Analyst Matthew Boss raised his rating on Gap (GPS) to Overweight from Neutral, and boosted his price target to $30 from $22. He lifted his forecasts for the retailer’s third-quarter results, saying he expects Gap to earn 40 cents a share, nine cents ahead of the Wall Street consensus. Sales at stores open at least a year are likely to be down just 0.2%, led by strength at Old Navy, he said, while the average call among analysts is for a 2.5% decline.
Gap was up 6.2% to $25.88 in early trading. The shares have climbed just under 38% in 2020.
The Old Navy brand is gaining from the closures and disruption the pandemic has brought to other retailers, a benefit that will linger even after life returns to normal, he said. The division has delivered impressive comparable sales in recent years and its growing off-mall presence is another plus.
Boss also highlighted Athleta fitness brand, which other analysts have also noted as a pandemic winner. He said he thinks that recent wellness trends should allow management to double the brand’s revenue base by fiscal 2023.
By that point, Old Navy and Athleta would account for some 70% of Gap’s revenues, offering the most attractive margins in the company’s portfolio. He sees an “embedded call option on Gap/Banana Republic with zero-value attributed to the two brands today, despite a potential near-term catalyst path” with the launch of Gap’s Kanye West partnership next year, and a likely increase in demand for clothing suitable for the office as coronavirus vaccines are distributed.
The company’s prior earnings report was also carried largely by good performance at Old Navy, Athleta, and robust double-digit e-commerce gains at all of its brands. Gap is one of the mall-based brands that have rallied in response to recent positive vaccine news.
Write to Teresa Rivas at [email protected]
