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Cautious Optimism in Gap's Pre-Q1 Earnings: Buy or Hold for Now?
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The Gap, Inc. (GAP - Free Report) is expected to register top and bottom-line growth when it reports first-quarter fiscal 2025 results on May 29, after the closing bell. For revenues, the Zacks Consensus Estimate is pegged at $3.4 billion, indicating a 0.9% rise from the year-ago quarter’s reported figure.
The Zacks Consensus Estimate for fiscal first-quarter earnings is pegged at 44 cents per share, suggesting a 7.3% increase from the year-ago quarter’s reported figure. The consensus estimate for fiscal first-quarter earnings has moved up by a penny in the past 30 days. (See the Zacks Earnings Calendar to stay ahead of market-making news.)
The San Francisco, CA-based company has been reporting steady earnings outcomes, as evident from its positive top and bottom-line surprise trends in the trailing four quarters. In the last reported quarter, the company’s earnings beat the Zacks Consensus Estimate by 50%. GAP has a trailing four-quarter earnings surprise of 77.5%, on average. Given its positive record, the question is whether the stock can maintain its momentum.
Earnings Whispers for Gap
Our proven model conclusively predicts an earnings beat for GAP this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks before they are reported with our Earnings ESP Filter.
Gap’s first-quarter fiscal 2025 results are expected to reflect its ability to gain market share and revive its brand position. Management has been committed to creating a trend-right merchandise assortment, deepening relations with customers via marketing, enhancing the digital commerce agenda and efficiently controlling expenses. Gains from these actions are expected to have bolstered the company’s performance in first-quarter fiscal 2025.
GAP’s first-quarter fiscal 2025 results are expected to benefit from its strong execution, brand momentum and financial discipline, positioning it for sustained growth. As a longstanding force in the apparel industry, Gap maintains a significant market presence through its diverse brand portfolio, which includes Old Navy, Banana Republic and Athleta.
On the last reported quarter’s earnings call, Gap anticipated net sales to be flat to up slightly year over year for the first quarter of fiscal 2025, signaling confidence in its strategic roadmap despite ongoing macroeconomic challenges. Sales growth is expected to be led by Old Navy and Gap brands, with Banana Republic showing signs of stabilization and Athleta undergoing a measured recovery.
Gap has been focused on enhancing supply-chain efficiency, implementing cost-saving strategies and driving digital transformation to improve operational agility and customer experience. At the same time, investments in product innovation, sustainability efforts and high-profile collaborations have helped attract younger consumers and reinforce the brand’s cultural relevance. International expansion and accelerated e-commerce adoption strengthen Gap’s long-term positioning.
GAP is driving meaningful cost efficiencies, targeting $150 million in cost savings in fiscal 2025, a portion of which will be reinvested in growth initiatives. These cost-savings are expected to have bolstered margins in the to-be-reported quarter.
Despite persistent headwinds, including inflation and tariff uncertainty, management has been preparing for a dynamic and resilient fiscal 2025. On the tariff front, the company has proactively diversified its sourcing. In fiscal 2024, fewer than 10% of its products were sourced from China, with Canada and Mexico representing less than 1% combined. As a result, Gap expects only a limited impact on margins from recently imposed tariffs, reflecting prudent supply-chain management.
For the fiscal first quarter, the company expects the gross margin to rise slightly year over year from the 41.2% recorded in the prior-year quarter. SG&A is expected to leverage marginally in the fiscal first quarter. Operating expenses, as a percentage of sales, are anticipated to leverage slightly year over year.
We expect the adjusted gross margin to jump 10 bps and adjusted operating expenses, as a percentage of sales, to dip 30 bps year over year for the fiscal first quarter. Our model indicates an increase of 30 bps in the adjusted operating margin to 6.4% in the to-be-reported quarter.
GAP’s shares have exhibited an uptrend in the past year, leaving behind its industry peers and the S&P 500. In the past year, the apparel retailer’s shares have rallied 35.7%, outperforming the industry’s decline of 0.1%. Also, the stock has outpaced the sector and the S&P 500’s growth of 16% and 9.4%, respectively, in the same period.
The Gap stock has displayed a significant rally compared with American Eagle Outfitters Inc. (AEO - Free Report) , Abercrombie & Fitch (ANF - Free Report) and Canada Goose’s (GOOS - Free Report) slumps of 53.8%, 51.2% and 15.8%, respectively, in the past year.
GAP's One-Year Price Performance
Image Source: Zacks Investment Research
At the current price of $28.46, the stock trades 7% below its 52-week high of $30.59. The company trades 67.5% above its 52-week low mark of $16.99.
From a valuation perspective, Gap shares present an attractive opportunity, trading at a discount to industry benchmarks. With a forward 12-month price-to-earnings ratio of 12.01X, below the Retail - Apparel and Shoes industry’s average of 17.68X, the stock offers compelling value for investors seeking exposure to the sector. The stock currently has a Value Score of A, validating its appeal.
Image Source: Zacks Investment Research
Investment Thesis
Gap has solidified its market presence through a portfolio of four distinct brands — Gap, Old Navy, Banana Republic and Athleta — each strategically targeting different consumer segments and contributing to a well-diversified revenue base. The company’s recent turnaround underscores the resilience of its business model and the impacts of disciplined cost management.
Positioned for long-term growth, GAP is focused on delivering trend-forward assortments, strengthening customer engagement through strategic marketing, accelerating its digital commerce initiatives and driving operational efficiency. By leveraging its strong retail legacy and iconic brand lineup, the company is actively executing key priorities to remain competitive and relevant in an evolving retail environment.
Conclusion
Gap heads into its first-quarter fiscal 2025 earnings results with cautious optimism, backed by disciplined cost control, brand diversification and strategic execution. While macroeconomic headwinds and tariff uncertainties persist, the company’s efforts to streamline operations, modernize its merchandise mix, and deepen customer engagement appear to be yielding incremental benefits.
With a modest improvement in margins expected and solid contributions anticipated from key brands like Old Navy and Gap, the stage is set for a potentially stable performance in the fiscal first quarter. However, given the broader retail landscape's ongoing volatility, investors may want to temper expectations and closely monitor management’s commentary on full-year guidance and brand momentum before making any definitive moves.
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Cautious Optimism in Gap's Pre-Q1 Earnings: Buy or Hold for Now?
The Gap, Inc. (GAP - Free Report) is expected to register top and bottom-line growth when it reports first-quarter fiscal 2025 results on May 29, after the closing bell. For revenues, the Zacks Consensus Estimate is pegged at $3.4 billion, indicating a 0.9% rise from the year-ago quarter’s reported figure.
The Zacks Consensus Estimate for fiscal first-quarter earnings is pegged at 44 cents per share, suggesting a 7.3% increase from the year-ago quarter’s reported figure. The consensus estimate for fiscal first-quarter earnings has moved up by a penny in the past 30 days. (See the Zacks Earnings Calendar to stay ahead of market-making news.)
The San Francisco, CA-based company has been reporting steady earnings outcomes, as evident from its positive top and bottom-line surprise trends in the trailing four quarters. In the last reported quarter, the company’s earnings beat the Zacks Consensus Estimate by 50%. GAP has a trailing four-quarter earnings surprise of 77.5%, on average. Given its positive record, the question is whether the stock can maintain its momentum.
Earnings Whispers for Gap
Our proven model conclusively predicts an earnings beat for GAP this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. You can uncover the best stocks before they are reported with our Earnings ESP Filter.
Gap currently has an Earnings ESP of +3.03% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
What to Expect From GAP’s Q1 Earnings: Key Trends
Gap’s first-quarter fiscal 2025 results are expected to reflect its ability to gain market share and revive its brand position. Management has been committed to creating a trend-right merchandise assortment, deepening relations with customers via marketing, enhancing the digital commerce agenda and efficiently controlling expenses. Gains from these actions are expected to have bolstered the company’s performance in first-quarter fiscal 2025.
GAP’s first-quarter fiscal 2025 results are expected to benefit from its strong execution, brand momentum and financial discipline, positioning it for sustained growth. As a longstanding force in the apparel industry, Gap maintains a significant market presence through its diverse brand portfolio, which includes Old Navy, Banana Republic and Athleta.
On the last reported quarter’s earnings call, Gap anticipated net sales to be flat to up slightly year over year for the first quarter of fiscal 2025, signaling confidence in its strategic roadmap despite ongoing macroeconomic challenges. Sales growth is expected to be led by Old Navy and Gap brands, with Banana Republic showing signs of stabilization and Athleta undergoing a measured recovery.
Gap has been focused on enhancing supply-chain efficiency, implementing cost-saving strategies and driving digital transformation to improve operational agility and customer experience. At the same time, investments in product innovation, sustainability efforts and high-profile collaborations have helped attract younger consumers and reinforce the brand’s cultural relevance. International expansion and accelerated e-commerce adoption strengthen Gap’s long-term positioning.
The Gap, Inc. Price and EPS Surprise
The Gap, Inc. price-eps-surprise | The Gap, Inc. Quote
GAP is driving meaningful cost efficiencies, targeting $150 million in cost savings in fiscal 2025, a portion of which will be reinvested in growth initiatives. These cost-savings are expected to have bolstered margins in the to-be-reported quarter.
Despite persistent headwinds, including inflation and tariff uncertainty, management has been preparing for a dynamic and resilient fiscal 2025. On the tariff front, the company has proactively diversified its sourcing. In fiscal 2024, fewer than 10% of its products were sourced from China, with Canada and Mexico representing less than 1% combined. As a result, Gap expects only a limited impact on margins from recently imposed tariffs, reflecting prudent supply-chain management.
For the fiscal first quarter, the company expects the gross margin to rise slightly year over year from the 41.2% recorded in the prior-year quarter. SG&A is expected to leverage marginally in the fiscal first quarter. Operating expenses, as a percentage of sales, are anticipated to leverage slightly year over year.
We expect the adjusted gross margin to jump 10 bps and adjusted operating expenses, as a percentage of sales, to dip 30 bps year over year for the fiscal first quarter. Our model indicates an increase of 30 bps in the adjusted operating margin to 6.4% in the to-be-reported quarter.
Gap’s Price Performance & Valuation Look Promising
GAP’s shares have exhibited an uptrend in the past year, leaving behind its industry peers and the S&P 500. In the past year, the apparel retailer’s shares have rallied 35.7%, outperforming the industry’s decline of 0.1%. Also, the stock has outpaced the sector and the S&P 500’s growth of 16% and 9.4%, respectively, in the same period.
The Gap stock has displayed a significant rally compared with American Eagle Outfitters Inc. (AEO - Free Report) , Abercrombie & Fitch (ANF - Free Report) and Canada Goose’s (GOOS - Free Report) slumps of 53.8%, 51.2% and 15.8%, respectively, in the past year.
GAP's One-Year Price Performance
Image Source: Zacks Investment Research
At the current price of $28.46, the stock trades 7% below its 52-week high of $30.59. The company trades 67.5% above its 52-week low mark of $16.99.
From a valuation perspective, Gap shares present an attractive opportunity, trading at a discount to industry benchmarks. With a forward 12-month price-to-earnings ratio of 12.01X, below the Retail - Apparel and Shoes industry’s average of 17.68X, the stock offers compelling value for investors seeking exposure to the sector. The stock currently has a Value Score of A, validating its appeal.
Image Source: Zacks Investment Research
Investment Thesis
Gap has solidified its market presence through a portfolio of four distinct brands — Gap, Old Navy, Banana Republic and Athleta — each strategically targeting different consumer segments and contributing to a well-diversified revenue base. The company’s recent turnaround underscores the resilience of its business model and the impacts of disciplined cost management.
Positioned for long-term growth, GAP is focused on delivering trend-forward assortments, strengthening customer engagement through strategic marketing, accelerating its digital commerce initiatives and driving operational efficiency. By leveraging its strong retail legacy and iconic brand lineup, the company is actively executing key priorities to remain competitive and relevant in an evolving retail environment.
Conclusion
Gap heads into its first-quarter fiscal 2025 earnings results with cautious optimism, backed by disciplined cost control, brand diversification and strategic execution. While macroeconomic headwinds and tariff uncertainties persist, the company’s efforts to streamline operations, modernize its merchandise mix, and deepen customer engagement appear to be yielding incremental benefits.
With a modest improvement in margins expected and solid contributions anticipated from key brands like Old Navy and Gap, the stage is set for a potentially stable performance in the fiscal first quarter. However, given the broader retail landscape's ongoing volatility, investors may want to temper expectations and closely monitor management’s commentary on full-year guidance and brand momentum before making any definitive moves.