Fundamental Analysis: GAP, INC. #GPS

The Gap, Inc., commonly known as Gap Inc. or Gap, is an American worldwide clothing and accessories retailer. Gap was founded in 1969 by Donald Fisher and Doris F. Fisher and is headquartered in San Francisco, California


💡 JPMorgan upgrades its Gap recommendation to Buy based on the company's favorable risk and return profile for 2021 after a long period of underperformance in stocks. It's good time to pay some attention to that stock.


⚡️ Growth factors:


• Gap, Inc is streamline its operations: closed over 230 stores and strength online presence at the same time: 3rd quarter earnings reported an increase of +60% YoY for online sales.


• The Old Navy cloth line is among the beneficiary after the pandemic, in fact it has been noted:

- a 3% increase in the company's comparable sales, which have lagged behind over the past 5 years (excluding 2019);

- Prospects for retail space growth outside shopping centers by 1-3%, as well as a 10% growth in comparable sales of Athleta (part of the Gap), which lagged behind over the past 3 years.

This is also underpinned by a growing trend in health, wellness, fitness: Management is expecting to double the brand's revenue by 2023 (19% CAGR).


• Management's 2023 EBIT margin forecast of 10% +, combined with Old Navy and Athleta accounting for ~ 70% of revenues. It would translate into positive EBIT margins for Gap and Banana Republic, 15-17% for Old Navy (in line with current levels) and 18-19% for Athleta.


• Gap is also launching a clothing line with rapper Kanye West in 2021. In addition, the return to workwear in light of vaccine news, will serve as a positive catalyst for Banana Republic business line.


💎 We believe that The Gap, Inc. #GPS may well demonstrate outstripping dynamics in the current market environment.


🎯 Target price - $ 30, growth potential + 40%.


OTB Global Investments

London, 6 December 2020




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