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Gap's Full-Price Selling Improves: Can AUR Gains Continue Ahead?
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Key Takeaways
Gap shifts to higher full-price selling, boosting AUR and supporting profitability trends.
GAP posted 38.9% Q4 margin, hit by tariff headwinds, while full-price sales lifted merchandise margins.
Gap's tighter inventory control and demand forecasting reduced excess stock and limited heavy promotions.
The Gap, Inc. (GAP - Free Report) has been steadily strengthening its pricing discipline, with a noticeable shift toward higher full-price selling helping reinforce its profitability profile. As the company advances its brand reinvigoration strategy, improved product acceptance and stronger merchandising execution have reduced reliance on heavy promotions. This transition reflects growing consumer confidence in the company’s assortments and suggests that Gap’s turnaround is increasingly supported by healthier demand dynamics rather than discount-driven sales.
The improvement in full-price selling has directly contributed to higher average unit retail (AUR) across key brands, supporting overall profitability trends. In the fourth quarter of fiscal 2025, the company delivered a gross margin of 38.9%, down 80 basis points (bps) year over year, primarily due to an estimated 200-bps tariff headwind, though underlying merchandise margins improved, driven by stronger full-price selling and lower markdown activity. Higher AUR has helped offset part of these cost pressures, particularly in core categories such as denim, fleece and activewear, where product acceptance remained strong.
Operational discipline has also played a major role in sustaining these pricing gains. Gap’s tighter inventory management and improved demand forecasting have enabled it to align supply more closely with consumer demand, reducing excess inventory that typically leads to heavy promotions. Additionally, stronger storytelling and culturally relevant marketing initiatives have enhanced brand perception, allowing it to maintain pricing strength without sacrificing customer traffic. These efforts highlight the importance of merchandising precision in supporting both sales quality and profitability.
The sustainability of AUR gains will depend on Gap’s ability to maintain product relevance while navigating external pressures such as tariffs, competitive pricing, and potential shifts in consumer demand. If promotional activity intensifies across the apparel industry, the company may face renewed pressure to discount. However, continued strength in product innovation, category leadership and disciplined inventory management could help sustain full-price selling momentum, making AUR performance a critical metric to watch in the coming quarters.
GAP’s Price Performance, Valuation & Estimates
Shares of this Zacks Rank #3 (Hold) company have gained 10.1% in the past six months against the industry’s decline of 5.3%.
Image Source: Zacks Investment Research
From a valuation standpoint, GAP trades at a forward price-to-earnings ratio of 10.15X compared with the industry’s average of 14.81X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for GAP’s fiscal 2026 sales and earnings implies year-over-year growth of 2.5% and 7.9%, respectively. For fiscal 2027, the consensus estimate indicates a 2.7% rise in sales and 13.7% growth in earnings.
Image Source: Zacks Investment Research
Stocks to Consider
We have highlighted three better-ranked stocks in the retail space, namely, Deckers Outdoor Corporation (DECK - Free Report) , Tapestry, Inc. (TPR - Free Report) and FIGS Inc. (FIGS - Free Report) .
The Zacks Consensus Estimate for Deckers’ current fiscal-year earnings and sales indicates growth of 8.5% and 8.9%, respectively, from the year-ago actuals. DECK delivered a trailing four-quarter average earnings surprise of 36.9%.
Tapestry, which was formerly known as Coach, Inc., is the designer and marketer of fine accessories and gifts for women and men in the United States and internationally. It currently sports a Zacks Rank of 1.
The Zacks Consensus Estimate for Tapestry’s current fiscal-year earnings and sales implies growth of 26.5% and 11.2%, respectively, from the year-ago actuals. TPR delivered a trailing four-quarter average earnings surprise of 12.8%.
FIGS is a direct-to-consumer healthcare apparel and lifestyle brand. It currently has a Zacks Rank #2 (Buy). The company delivered a trailing four-quarter earnings surprise of 187.5%, on average.
The Zacks Consensus Estimate for FIGS’ current financial-year sales indicates growth of 11.7% from the year-ago reported number.
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Gap's Full-Price Selling Improves: Can AUR Gains Continue Ahead?
Key Takeaways
The Gap, Inc. (GAP - Free Report) has been steadily strengthening its pricing discipline, with a noticeable shift toward higher full-price selling helping reinforce its profitability profile. As the company advances its brand reinvigoration strategy, improved product acceptance and stronger merchandising execution have reduced reliance on heavy promotions. This transition reflects growing consumer confidence in the company’s assortments and suggests that Gap’s turnaround is increasingly supported by healthier demand dynamics rather than discount-driven sales.
The improvement in full-price selling has directly contributed to higher average unit retail (AUR) across key brands, supporting overall profitability trends. In the fourth quarter of fiscal 2025, the company delivered a gross margin of 38.9%, down 80 basis points (bps) year over year, primarily due to an estimated 200-bps tariff headwind, though underlying merchandise margins improved, driven by stronger full-price selling and lower markdown activity. Higher AUR has helped offset part of these cost pressures, particularly in core categories such as denim, fleece and activewear, where product acceptance remained strong.
Operational discipline has also played a major role in sustaining these pricing gains. Gap’s tighter inventory management and improved demand forecasting have enabled it to align supply more closely with consumer demand, reducing excess inventory that typically leads to heavy promotions. Additionally, stronger storytelling and culturally relevant marketing initiatives have enhanced brand perception, allowing it to maintain pricing strength without sacrificing customer traffic. These efforts highlight the importance of merchandising precision in supporting both sales quality and profitability.
The sustainability of AUR gains will depend on Gap’s ability to maintain product relevance while navigating external pressures such as tariffs, competitive pricing, and potential shifts in consumer demand. If promotional activity intensifies across the apparel industry, the company may face renewed pressure to discount. However, continued strength in product innovation, category leadership and disciplined inventory management could help sustain full-price selling momentum, making AUR performance a critical metric to watch in the coming quarters.
GAP’s Price Performance, Valuation & Estimates
Shares of this Zacks Rank #3 (Hold) company have gained 10.1% in the past six months against the industry’s decline of 5.3%.
Image Source: Zacks Investment Research
From a valuation standpoint, GAP trades at a forward price-to-earnings ratio of 10.15X compared with the industry’s average of 14.81X.
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for GAP’s fiscal 2026 sales and earnings implies year-over-year growth of 2.5% and 7.9%, respectively. For fiscal 2027, the consensus estimate indicates a 2.7% rise in sales and 13.7% growth in earnings.
Image Source: Zacks Investment Research
Stocks to Consider
We have highlighted three better-ranked stocks in the retail space, namely, Deckers Outdoor Corporation (DECK - Free Report) , Tapestry, Inc. (TPR - Free Report) and FIGS Inc. (FIGS - Free Report) .
Deckers is a leading designer, producer and brand manager of innovative, niche footwear and accessories. It flaunts a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Deckers’ current fiscal-year earnings and sales indicates growth of 8.5% and 8.9%, respectively, from the year-ago actuals. DECK delivered a trailing four-quarter average earnings surprise of 36.9%.
Tapestry, which was formerly known as Coach, Inc., is the designer and marketer of fine accessories and gifts for women and men in the United States and internationally. It currently sports a Zacks Rank of 1.
The Zacks Consensus Estimate for Tapestry’s current fiscal-year earnings and sales implies growth of 26.5% and 11.2%, respectively, from the year-ago actuals. TPR delivered a trailing four-quarter average earnings surprise of 12.8%.
FIGS is a direct-to-consumer healthcare apparel and lifestyle brand. It currently has a Zacks Rank #2 (Buy). The company delivered a trailing four-quarter earnings surprise of 187.5%, on average.
The Zacks Consensus Estimate for FIGS’ current financial-year sales indicates growth of 11.7% from the year-ago reported number.