Gap Inc. is making another attempt to tap the India market via a new franchise agreement with Reliance Retail. The deal makes Reliance Retail the official retailer for Gap across all channels in India. Customers will now be able to avail of Gap’s latest offerings in exclusive Reliance stores, multi-brand store expressions and online platforms.

The move will help Gap strengthen its position as a leading casual lifestyle brand. Also, Reliance Retail’s robust omni-channel retail networks, as well as local manufacturing and sourcing efficiencies, will help Gap expand its base across the key international markets.

Previously, Gap tried to attract customers in India by collaborating with Arvind Fashions in 2020. However, the deal was terminated later as the COVID-led lockdowns resulted in drab traffic across stores and malls.

What Else Should You Know?

Gap has long been gaining from the continued momentum across its Athleta brand. The Athleta brand’s value-driven active and lifestyle categories, increased digital marketing investments, and focus on product strategy have been aiding sales.

In first-quarter fiscal 2022, net sales jumped 4% for the Athleta brand, driven by increased awareness, along with strength in women’s active and wellness category. The metric also surged more than 60% on a two-year basis.

Increased focus on performance active as well as active lifestyle products to capitalize on the evolving shopping trends bodes well. It has also emerged as one of the fastest-growing women's athleisure brands in North America. Driven by these factors, Athleta remains on track to reach $2 billion in net sales by fiscal 2023.

The company remains on track with its Power Plan 2023, which focuses on opening highly profitable Old Navy and Athleta stores, while closing the underperforming Gap and Banana Republic stores. As part of the plan, the company expects the Old Navy and Athleta brands to contribute 70% to sales by 2023.

In sync with its fleet-optimization efforts under the Power Plan 2023, the company aims to close 50-60 Gap and Banana Republic stores in North America in fiscal 2022. With the closing of underperforming Gap and Banana Republic stores, it expects to realize $100 million in EBITDA savings annually by 2023-end. Also, the company expects the e-commerce business to contribute 50% to sales by the end of 2023.

However, the Zacks Rank #5 (Strong Sell) company is reeling under industry-wide challenges as well as headwinds in its Old Navy brand, including issues related to the launch of BODEQUALITY. Also, lower-than-anticipated demand in key categories like active, fleece, and kids and baby dented the first-quarter fiscal 2022 results.

Net sales declined 13% year over year to $3,477 million. Comparable sales (comps) slumped 14% on a year-over-year basis. The company reported a loss of 44 cents in first-quarter fiscal 2022 against earnings of 48 cents in first-quarter fiscal 2021. This was mainly due to weak margins. Huge discounts at Old Navy and rising commodity price increases acted as deterrents.

Also, longer transit times, more delays, pack-and-hold strategies, and elevated AUC and input costs remain concerning. Inventory is likely to remain high in the fiscal second quarter as well.

Management slashed the fiscal 2022 view due to headwinds at the Old Navy brand, the current macro consumer environment, inflationary pressures and sluggishness in China. It expects adjusted earnings of 30-60 cents, down from the prior mentioned $1.85-$2.05. Sales are anticipated to decline in the low to mid-single-digit range, which compares unfavorably with earlier stated low-single-digit growth.

The adjusted operating margin is likely to be 1.5-2.5%, down from the previously communicated 6-6.5%. The company anticipates continued elevated air freight expenses for fiscal 2022, with $170 million incurred in the first quarter and $50 million to be incurred in the second quarter.

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We note that the GPS stock has plunged 51.4% year to date compared with the industry’s decline of 44.7%.

Stocks to Consider

Here are three better-ranked stocks to consider — Dillard’s (DDS Quick QuoteDDS - Free Report) , Boot Barn Holdings (BOOT Quick QuoteBOOT - Free Report) and Canada Goose (GOOS Quick QuoteGOOS - Free Report) .

Dillard’s operates as a departmental store chain, featuring fashion apparel and home furnishings. It presently sports a Zacks Rank #1 (Strong Buy). DDS has a trailing four-quarter earnings surprise of 224.1%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Dillard’s current financial-year sales suggests growth of 6.1%, while the same for EPS indicates a decline of 33.9% from the year-ago period’s reported numbers. DDS has an expected EPS growth rate of 12.6% for three-five years.

Boot Barn, which provides western and work-related footwear, apparel and accessories, currently has a Zacks Rank #2 (Buy). The company has a trailing four-quarter earnings surprise of 25.2%, on average.

The Zacks Consensus Estimate for Boot Barn’s current financial year’s sales and EPS suggests growth of 17% and 4.4%, respectively, from the year-ago period’s reported figures. BOOT has an expected EPS growth rate of 20% for three-five years.

Canada Goose is the designer, manufacturer, distributor and retailer of premium outerwear for men, women and children. It currently carries a Zacks Rank #2. GOOS has a trailing four-quarter earnings surprise of 65.9%, on average.

The Zacks Consensus Estimate for Canada Goose’s current financial year’s EPS suggests growth of 64.4% from the year-ago period’s reported figures. GOOS has an expected EPS growth rate of 27.4% for three-five years.