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Gap (GPS) Stock Rallies 76% in Six Months: What's Ahead?
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The Gap, Inc. has demonstrated remarkable strength driven by its four strategic priorities. Through this plan, the company has been emphasizing maintaining financial stability and operational efficiency, strengthening its brand to stay competitive, enhancing its platform for better results and finally fostering an organizational culture.
Headquartered in San Francisco, this Zacks Rank #1 (Strong Buy) stock has rallied 76.1% in the past six months compared with the industry’s growth of 27.8%.
Gap has emerged as a compelling contender, thanks to its consistent performance and proactive approach in the market. This is further supported by its Value Score of A.
Image Source: Zacks Investment Research
More Insights
GPS has navigated the challenges prevailing in the apparel market and demonstrated remarkable resilience and growth potential in its results in the last reported quarter. Brand wise, Old Navy and Gap Global experienced 2% and 4% increase in comparable sales, respectively, primarily fueled by strong performance in the women's category. This led to the Gap Global brand achieving its fifth consecutive quarter of market share gains.
Additionally, the company has been gaining from lower airfreight, improved promotions and cost cutting actions, which have been aiding margins.
GPS' gross margin expanded 530 basis points (bps) year over year in fourth-quarter fiscal 2023, on the back of improved merchandise margin. This achievement was driven by several factors, including more effective sourcing strategies, decreased commodity costs and enhanced promotional activities. Moreover, maintaining leaner inventories and offering better assortments contributed to this improvement.
Management expects gross margin to expand in the fiscal first quarter and fiscal 2024, backed by merchandise margin expansion and commodity cost tailwinds, which are likely to benefit the first half of the fiscal year. Gap expects gross margin expansion of 100 bps for the first quarter and 50 bps for fiscal 2024.
It also projects operating income to grow in the low to mid-teens for fiscal 2024. The outlook assumes solid performance of Old Navy and Gap, offset by tough comparisons for Athleta and a longer recovery for Banana Republic. Driven by commodity cost tailwinds. It expects taking a prudent approach with respect to promotional environment in the first quarter.
Management is focused on managing its costs effectively, which is crucial for maintaining profitability and financial health. By simplifying its operating model and organizational structure, the company is likely aiming to adapt to changing market conditions and become more agile in its decision-making processes.
Final Thoughts
GPS’ strategic endeavors position the stock firmly for growth. With promising factors, such as gross margin recovery, expense discipline, inventory management and maintaining a strong balance sheet, the company appears poised for growth.
For fiscal 2024, management anticipates maintaining stability and strengthening core aspects of its business. Monitoring the controllables such as gross margin recovery, expense discipline and inventory management indicates a commitment to operational efficiency. For fiscal 2024, management envisions flat net sales compared with a year ago.
3 Picks You Can’t Miss
We have highlighted three other top-ranked stocks, namely American Eagle Outfitters Inc. (AEO - Free Report) , Abercrombie & Fitch Co. (ANF - Free Report) and Gildan Activewear Inc. (GIL - Free Report) .
The Zacks Consensus Estimate for American Eagle Outfitters’ current fiscal-year earnings and sales indicates growth of 12.5% and 3.4%, respectively, from the year-ago period’s reported figures. AEO has a trailing four-quarter average earnings surprise of 22.7%.
Abercrombie & Fitch, a specialty retailer of premium, high-quality casual apparel, currently carries a Zacks Rank of 2. ANF has a trailing four-quarter average earnings surprise of 715.6%.
The Zacks Consensus Estimate for Abercrombie & Fitch’s current fiscal-year earnings and sales indicates growth of 20.1% and 5.9%, respectively, from the prior-year levels.
Gildan Activewear, a distributer and manufacturer of activewear products, currently carries a Zacks Rank #2. GIL has a trailing four-quarter earnings surprise of 5.6%, on average.
The Zacks Consensus Estimate for Gildan Activewear current fiscal-year earnings and sales suggests an improvement of 14.4% and 2.1%, respectively, from the year-earlier levels.
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Gap (GPS) Stock Rallies 76% in Six Months: What's Ahead?
The Gap, Inc. has demonstrated remarkable strength driven by its four strategic priorities. Through this plan, the company has been emphasizing maintaining financial stability and operational efficiency, strengthening its brand to stay competitive, enhancing its platform for better results and finally fostering an organizational culture.
Headquartered in San Francisco, this Zacks Rank #1 (Strong Buy) stock has rallied 76.1% in the past six months compared with the industry’s growth of 27.8%.
Gap has emerged as a compelling contender, thanks to its consistent performance and proactive approach in the market. This is further supported by its Value Score of A.
Image Source: Zacks Investment Research
More Insights
GPS has navigated the challenges prevailing in the apparel market and demonstrated remarkable resilience and growth potential in its results in the last reported quarter. Brand wise, Old Navy and Gap Global experienced 2% and 4% increase in comparable sales, respectively, primarily fueled by strong performance in the women's category. This led to the Gap Global brand achieving its fifth consecutive quarter of market share gains.
Additionally, the company has been gaining from lower airfreight, improved promotions and cost cutting actions, which have been aiding margins.
GPS' gross margin expanded 530 basis points (bps) year over year in fourth-quarter fiscal 2023, on the back of improved merchandise margin. This achievement was driven by several factors, including more effective sourcing strategies, decreased commodity costs and enhanced promotional activities. Moreover, maintaining leaner inventories and offering better assortments contributed to this improvement.
Management expects gross margin to expand in the fiscal first quarter and fiscal 2024, backed by merchandise margin expansion and commodity cost tailwinds, which are likely to benefit the first half of the fiscal year. Gap expects gross margin expansion of 100 bps for the first quarter and 50 bps for fiscal 2024.
It also projects operating income to grow in the low to mid-teens for fiscal 2024. The outlook assumes solid performance of Old Navy and Gap, offset by tough comparisons for Athleta and a longer recovery for Banana Republic. Driven by commodity cost tailwinds. It expects taking a prudent approach with respect to promotional environment in the first quarter.
Management is focused on managing its costs effectively, which is crucial for maintaining profitability and financial health. By simplifying its operating model and organizational structure, the company is likely aiming to adapt to changing market conditions and become more agile in its decision-making processes.
Final Thoughts
GPS’ strategic endeavors position the stock firmly for growth. With promising factors, such as gross margin recovery, expense discipline, inventory management and maintaining a strong balance sheet, the company appears poised for growth.
For fiscal 2024, management anticipates maintaining stability and strengthening core aspects of its business. Monitoring the controllables such as gross margin recovery, expense discipline and inventory management indicates a commitment to operational efficiency. For fiscal 2024, management envisions flat net sales compared with a year ago.
3 Picks You Can’t Miss
We have highlighted three other top-ranked stocks, namely American Eagle Outfitters Inc. (AEO - Free Report) , Abercrombie & Fitch Co. (ANF - Free Report) and Gildan Activewear Inc. (GIL - Free Report) .
American Eagle Outfitters, a specialty retailer of casual apparel, accessories and footwear, carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for American Eagle Outfitters’ current fiscal-year earnings and sales indicates growth of 12.5% and 3.4%, respectively, from the year-ago period’s reported figures. AEO has a trailing four-quarter average earnings surprise of 22.7%.
Abercrombie & Fitch, a specialty retailer of premium, high-quality casual apparel, currently carries a Zacks Rank of 2. ANF has a trailing four-quarter average earnings surprise of 715.6%.
The Zacks Consensus Estimate for Abercrombie & Fitch’s current fiscal-year earnings and sales indicates growth of 20.1% and 5.9%, respectively, from the prior-year levels.
Gildan Activewear, a distributer and manufacturer of activewear products, currently carries a Zacks Rank #2. GIL has a trailing four-quarter earnings surprise of 5.6%, on average.
The Zacks Consensus Estimate for Gildan Activewear current fiscal-year earnings and sales suggests an improvement of 14.4% and 2.1%, respectively, from the year-earlier levels.