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Gap (GPS) Surges More Than 55% in 3 Months: More Upside Left?
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Shares of The Gap, Inc. (GPS - Free Report) have gained 55.4% in the past three months, outperforming the industry’s growth of 26.4%. The stock's bullish run on the bourses can be attributable to a solid online show, driven by its strong omnichannel capabilities and continued strength in the Old Navy and Athleta brands. Notably, the bottom line reflected the second consecutive quarter of earnings beat in fourth-quarter fiscal 2020. Also, its Power Plan 2023 strategy bodes well.
That said, let’s delve deeper into the factors that are aiding the stock.
Factors Narrating Gap’s Growth Story
Gap has been gaining from continued online momentum since the onset of the pandemic, driven by a shift in consumer preference toward online shopping. Strength in e-commerce business contributed to the company’s consolidated sales as well as gains in its Gap, Old Navy and Athleta brands. Notably, online sales surged 49% in the fiscal fourth quarter on the back of BOPIS and Ship from Store facilities. Also, online sales represented 46% of total sales in the quarter under review. Further, it remains focused on its mobile shopping facility, which accounts for 75% of online sales.
Moreover, management believes online sales will be a key growth driver, going forward. As a result, it remains optimistic about fiscal 2021 results, driven by investments in digital capabilities, including the loyalty program, robust online momentum and increased marketing investments. Notably, Gap envisions adjusted earnings to be $1.2-$1.35 per share with sales growth of mid- to high-teens in fiscal 2021.
The company remains poised to gain from its Old Navy brand, which has been witnessing a significant acceleration in the digital business since the start of the pandemic, on the back of robust customer demand. Net sales for the Old Navy brand improved 5% in the fiscal fourth quarter, with comps growth of 7%. This uptick can be attributable to continued momentum in casual and cozy categories with sturdy performance in Active, Fleece and Sleep.
Also, its smaller brands, namely Athleta, have been performing well on the back of its value-driven active and lifestyle categories, increased digital marketing investments, and focus on product strategy. In fourth-quarter fiscal 2020, Athleta’s net sales were up 29%, with comps growth of 26%. The brand benefited from new products, particularly sleepwear, rising customer engagement and its long-term growth strategy. Driven by such upsides, Athleta reached more than $1 billion in sales during fiscal 2020 and is likely to reach $2 billion by 2023.
Apart from these, Gap remains on track with the execution of its Power Plan 2023, which focuses on opening highly-profitable Old Navy and Athleta stores. As part of the plan, the company expects the Old Navy and Athleta brands to contribute about 70% of sales by 2023. In sync with its fleet optimization efforts, the closing of underperforming Gap and Banana Republic stores is anticipated to realize $100 million in EBITDA savings annually by the end of 2023. It also envisions the e-commerce business to contribute 50% of sales by the end of 2023 on the back of higher investments in digital, technology and distribution capacity.
Hurdles in the Way
Despite such well-chalked efforts, Gap continues to reel under sluggish store traffic due to rising COVID-19 cases. Further, the shift in consumer demand to more casual fashion in a bid to meet stay-at-home requirements is weighing on Gap’s Global and Banana Republic Global brands, which specialize in workwear assortments. As a result, management decided to shut down 100 underperforming stores in fiscal 2021. Also, it noted that adverse impacts of COVID-19 are likely to persist in the first half of 2021.
Further, higher operating expenses, driven by elevated spending toward health and safety measures at stores, and a significant rise in marketing expenses across all brands act as headwinds. Moreover, higher shipping expenses to fulfill the increased online orders are concerning. Going ahead, operating margin is expected to be roughly 5% in fiscal 2021, down from the earlier year’s 6.2%.
Bottom Line
We believe that a solid online show and strength in its Old Navy and Athleta brands will help this Zacks Rank #3 (Hold) stock sustain momentum. Moreover, a VGM Score of B and a long-term earnings growth rate of 12% highlight its growth prospects. Notably, the Zacks Consensus Estimate for fiscal 2021 earnings is pegged at $1.26 per share, indicating an increase of 1.4% in the past 30 days.
Hibbett Sports (HIBB - Free Report) currently has a long-term expected earnings growth rate of 17.2% and a Zacks Rank #1.
Tapestry (TPR - Free Report) , with a Zacks Rank #2 (Buy), has an expected long-term earnings growth rate of 10%.
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?
Last year's 2020 Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
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Gap (GPS) Surges More Than 55% in 3 Months: More Upside Left?
Shares of The Gap, Inc. (GPS - Free Report) have gained 55.4% in the past three months, outperforming the industry’s growth of 26.4%. The stock's bullish run on the bourses can be attributable to a solid online show, driven by its strong omnichannel capabilities and continued strength in the Old Navy and Athleta brands. Notably, the bottom line reflected the second consecutive quarter of earnings beat in fourth-quarter fiscal 2020. Also, its Power Plan 2023 strategy bodes well.
That said, let’s delve deeper into the factors that are aiding the stock.
Factors Narrating Gap’s Growth Story
Gap has been gaining from continued online momentum since the onset of the pandemic, driven by a shift in consumer preference toward online shopping. Strength in e-commerce business contributed to the company’s consolidated sales as well as gains in its Gap, Old Navy and Athleta brands. Notably, online sales surged 49% in the fiscal fourth quarter on the back of BOPIS and Ship from Store facilities. Also, online sales represented 46% of total sales in the quarter under review. Further, it remains focused on its mobile shopping facility, which accounts for 75% of online sales.
Moreover, management believes online sales will be a key growth driver, going forward. As a result, it remains optimistic about fiscal 2021 results, driven by investments in digital capabilities, including the loyalty program, robust online momentum and increased marketing investments. Notably, Gap envisions adjusted earnings to be $1.2-$1.35 per share with sales growth of mid- to high-teens in fiscal 2021.
The company remains poised to gain from its Old Navy brand, which has been witnessing a significant acceleration in the digital business since the start of the pandemic, on the back of robust customer demand. Net sales for the Old Navy brand improved 5% in the fiscal fourth quarter, with comps growth of 7%. This uptick can be attributable to continued momentum in casual and cozy categories with sturdy performance in Active, Fleece and Sleep.
Also, its smaller brands, namely Athleta, have been performing well on the back of its value-driven active and lifestyle categories, increased digital marketing investments, and focus on product strategy. In fourth-quarter fiscal 2020, Athleta’s net sales were up 29%, with comps growth of 26%. The brand benefited from new products, particularly sleepwear, rising customer engagement and its long-term growth strategy. Driven by such upsides, Athleta reached more than $1 billion in sales during fiscal 2020 and is likely to reach $2 billion by 2023.
Apart from these, Gap remains on track with the execution of its Power Plan 2023, which focuses on opening highly-profitable Old Navy and Athleta stores. As part of the plan, the company expects the Old Navy and Athleta brands to contribute about 70% of sales by 2023. In sync with its fleet optimization efforts, the closing of underperforming Gap and Banana Republic stores is anticipated to realize $100 million in EBITDA savings annually by the end of 2023. It also envisions the e-commerce business to contribute 50% of sales by the end of 2023 on the back of higher investments in digital, technology and distribution capacity.
Hurdles in the Way
Despite such well-chalked efforts, Gap continues to reel under sluggish store traffic due to rising COVID-19 cases. Further, the shift in consumer demand to more casual fashion in a bid to meet stay-at-home requirements is weighing on Gap’s Global and Banana Republic Global brands, which specialize in workwear assortments. As a result, management decided to shut down 100 underperforming stores in fiscal 2021. Also, it noted that adverse impacts of COVID-19 are likely to persist in the first half of 2021.
Further, higher operating expenses, driven by elevated spending toward health and safety measures at stores, and a significant rise in marketing expenses across all brands act as headwinds. Moreover, higher shipping expenses to fulfill the increased online orders are concerning. Going ahead, operating margin is expected to be roughly 5% in fiscal 2021, down from the earlier year’s 6.2%.
Bottom Line
We believe that a solid online show and strength in its Old Navy and Athleta brands will help this Zacks Rank #3 (Hold) stock sustain momentum. Moreover, a VGM Score of B and a long-term earnings growth rate of 12% highlight its growth prospects. Notably, the Zacks Consensus Estimate for fiscal 2021 earnings is pegged at $1.26 per share, indicating an increase of 1.4% in the past 30 days.
Stocks to Consider in the Retail Space
Abercrombie & Fitch (ANF - Free Report) has a long-term earnings growth rate of 18% and currently, a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Hibbett Sports (HIBB - Free Report) currently has a long-term expected earnings growth rate of 17.2% and a Zacks Rank #1.
Tapestry (TPR - Free Report) , with a Zacks Rank #2 (Buy), has an expected long-term earnings growth rate of 10%.
Zacks Top 10 Stocks for 2021
In addition to the stocks discussed above, would you like to know about our 10 best buy-and-hold tickers for the entirety of 2021?
Last year's 2020 Zacks Top 10 Stocks portfolio returned gains as high as +386.8%. Now a brand-new portfolio has been handpicked from over 4,000 companies covered by the Zacks Rank. Don’t miss your chance to get in on these long-term buys.
Access Zacks Top 10 Stocks for 2021 today >>