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GAP Stock Declined 15% in Three Months: Will It Surprise Investors?
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The Gap, Inc. (GAP - Free Report) is encountering significant challenges due to the volatile macroeconomic environment. In the past three months, the company's stock has dropped by 15.2%, underperforming the industry’s decline of 4.3%, and the Zacks Retail-Wholesale sector’s 8.3% growth.
This decline in stock performance is due to soft consumer demand, inflationary pressures affecting discretionary spending and rising operational costs. These factors led to a downward trend in the GAP stock. This negative sentiment is further highlighted by its technical indicators.
Image Source: Zacks Investment Research
The Gap stock is trading below its 50-day and 200-day moving averages, which indicates a bearish sentiment by technical analysts. This downward movement indicates sustained selling pressure and suggests that the stock may continue its declining trend, at least in the short term. GAP’s current stock price of $20.32 marks a significant 33.6% discount from its 52-week high of $30.59.
Image Source: Zacks Investment Research
While Gap is expected to face short-term challenges, several positives suggest the potential for future growth. These factors could help the company rebound once the broader macroeconomic environment stabilizes.
Factors to Drive GAP Stock's Success
Gap strategically focuses on several core areas to drive its long-term growth and recovery. By maintaining financial and operational rigor, reinvigoration of its brands, strengthening the operating platform and energizing the culture, Gap is well poised for sustained growth.
Gap is making smooth progress in the reinvigoration of the brands. Management sees an opportunity to lean further into denim and enhance the offerings, with a dynamic in-store and online experience, driven by new campaigns.
Building on success in the Kids category, the company has launched a highly impactful back-to-school campaign, leveraging an innovative media mix with mom-approved messaging. Collaborations like the DOEN partnership played a key role in driving revenues and brand relevance while deepening loyalty with its core customers.
Gap remains on track with its aggressively undertaking cost-management actions. The company has been making efforts to simplify and optimize its operating model and structure, including increasing spans of control and decreasing management layers to improve the quality and speed of decision-making, as well as creating a consistent organizational structure across all four brands.
GAP Shows Upward Estimate Trajectory
Reflecting the positive sentiment around Gap, the Zacks Consensus Estimate for earnings per share has seen upward revisions. In the past 60 days, analysts have increased estimates for fiscal 2024 by 6.8% to $1.88 and for fiscal 2025 by 6.3% to $2.02 per share. These estimates indicate expected year-over-year growth rates of around 31.5% and 7.5%, respectively.
Image Source: Zacks Investment Research
GAP Stock’s Attractive Valuation
Gap is currently trading at a price-to-earnings multiple of 10.31X, below the Zacks Retail - Apparel and Shoes industry multiple of 16.24X. The stock is undervalued compared with its industry peers, offering compelling value to investors looking for exposure to the retail apparel sector. GAP's Value Score of A underscores its appeal as a potential investment.
Investment Guidance for GAP
Gap is optimistic about its targets for fiscal 2024. It expects gross margin expansion of at least 200 bps and operating income to grow in the mid-to-high 50% range.
For the fiscal third quarter, management projects net sales to rise slightly year over year from $3.77 billion based on the year-to-date trends. The company expects gross margin expansion of 50-75 bps from 41.3% in the year-earlier quarter on lower promotional activity and operating expenses of nearly $1.3 billion.
Gap’s long-term growth potential appears promising. Despite facing short-term challenges from a volatile macroeconomic environment, the company is actively addressing these issues through the implementation of four strategic priorities.
However, it’s essential to monitor Gap's ability to navigate these current challenges and execute its strategies effectively. For Gap, which currently carries a Zacks Rank of #3 (Hold), we recommend investors wait for a better entry point before making a move.
Three Picks You Can't-Miss
We have highlighted three better-ranked stocks in the broader sector, namely Abercrombie & Fitch Co. (ANF - Free Report) , The Kroger Co. (KR - Free Report) and Burlington Stores (BURL - Free Report) .
The Zacks Consensus Estimate for ANF’s current financial-year sales and earnings indicates growth of 13% and 63.4%, respectively, from the year-ago reported figures. Abercrombie has a trailing four-quarter earnings surprise of 27.9%, on average.
Kroger, a renowned food retailer, currently carries a Zacks Rank #2 (Buy). KR has a trailing four-quarter average earnings surprise of 8.2%.
The Zacks Consensus Estimate for Kroger's current fiscal sales and earnings indicates a decline of 0.9% and 6.3%, respectively, from the year-ago reported figure.
Burlington Stores is a nationally recognized off-price retailer of high-quality, branded apparel, footwear, accessories and merchandise for the home at everyday low prices. It currently carries a Zacks Rank #2. BURL has a trailing four-quarter earnings surprise of 18.4%, on average.
The Zacks Consensus Estimate for Burlington Stores’ current financial-year sales and earnings suggests growth of 10.1% and 30.5%, respectively, from the year-ago reported number
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GAP Stock Declined 15% in Three Months: Will It Surprise Investors?
The Gap, Inc. (GAP - Free Report) is encountering significant challenges due to the volatile macroeconomic environment. In the past three months, the company's stock has dropped by 15.2%, underperforming the industry’s decline of 4.3%, and the Zacks Retail-Wholesale sector’s 8.3% growth.
This decline in stock performance is due to soft consumer demand, inflationary pressures affecting discretionary spending and rising operational costs. These factors led to a downward trend in the GAP stock. This negative sentiment is further highlighted by its technical indicators.
Image Source: Zacks Investment Research
The Gap stock is trading below its 50-day and 200-day moving averages, which indicates a bearish sentiment by technical analysts. This downward movement indicates sustained selling pressure and suggests that the stock may continue its declining trend, at least in the short term. GAP’s current stock price of $20.32 marks a significant 33.6% discount from its 52-week high of $30.59.
Image Source: Zacks Investment Research
While Gap is expected to face short-term challenges, several positives suggest the potential for future growth. These factors could help the company rebound once the broader macroeconomic environment stabilizes.
Factors to Drive GAP Stock's Success
Gap strategically focuses on several core areas to drive its long-term growth and recovery. By maintaining financial and operational rigor, reinvigoration of its brands, strengthening the operating platform and energizing the culture, Gap is well poised for sustained growth.
Gap is making smooth progress in the reinvigoration of the brands. Management sees an opportunity to lean further into denim and enhance the offerings, with a dynamic in-store and online experience, driven by new campaigns.
Building on success in the Kids category, the company has launched a highly impactful back-to-school campaign, leveraging an innovative media mix with mom-approved messaging. Collaborations like the DOEN partnership played a key role in driving revenues and brand relevance while deepening loyalty with its core customers.
Gap remains on track with its aggressively undertaking cost-management actions. The company has been making efforts to simplify and optimize its operating model and structure, including increasing spans of control and decreasing management layers to improve the quality and speed of decision-making, as well as creating a consistent organizational structure across all four brands.
GAP Shows Upward Estimate Trajectory
Reflecting the positive sentiment around Gap, the Zacks Consensus Estimate for earnings per share has seen upward revisions. In the past 60 days, analysts have increased estimates for fiscal 2024 by 6.8% to $1.88 and for fiscal 2025 by 6.3% to $2.02 per share. These estimates indicate expected year-over-year growth rates of around 31.5% and 7.5%, respectively.
Image Source: Zacks Investment Research
GAP Stock’s Attractive Valuation
Gap is currently trading at a price-to-earnings multiple of 10.31X, below the Zacks Retail - Apparel and Shoes industry multiple of 16.24X. The stock is undervalued compared with its industry peers, offering compelling value to investors looking for exposure to the retail apparel sector. GAP's Value Score of A underscores its appeal as a potential investment.
Investment Guidance for GAP
Gap is optimistic about its targets for fiscal 2024. It expects gross margin expansion of at least 200 bps and operating income to grow in the mid-to-high 50% range.
For the fiscal third quarter, management projects net sales to rise slightly year over year from $3.77 billion based on the year-to-date trends. The company expects gross margin expansion of 50-75 bps from 41.3% in the year-earlier quarter on lower promotional activity and operating expenses of nearly $1.3 billion.
Gap’s long-term growth potential appears promising. Despite facing short-term challenges from a volatile macroeconomic environment, the company is actively addressing these issues through the implementation of four strategic priorities.
However, it’s essential to monitor Gap's ability to navigate these current challenges and execute its strategies effectively. For Gap, which currently carries a Zacks Rank of #3 (Hold), we recommend investors wait for a better entry point before making a move.
Three Picks You Can't-Miss
We have highlighted three better-ranked stocks in the broader sector, namely Abercrombie & Fitch Co. (ANF - Free Report) , The Kroger Co. (KR - Free Report) and Burlington Stores (BURL - Free Report) .
Abercrombie, a leading casual apparel retailer, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for ANF’s current financial-year sales and earnings indicates growth of 13% and 63.4%, respectively, from the year-ago reported figures. Abercrombie has a trailing four-quarter earnings surprise of 27.9%, on average.
Kroger, a renowned food retailer, currently carries a Zacks Rank #2 (Buy). KR has a trailing four-quarter average earnings surprise of 8.2%.
The Zacks Consensus Estimate for Kroger's current fiscal sales and earnings indicates a decline of 0.9% and 6.3%, respectively, from the year-ago reported figure.
Burlington Stores is a nationally recognized off-price retailer of high-quality, branded apparel, footwear, accessories and merchandise for the home at everyday low prices. It currently carries a Zacks Rank #2. BURL has a trailing four-quarter earnings surprise of 18.4%, on average.
The Zacks Consensus Estimate for Burlington Stores’ current financial-year sales and earnings suggests growth of 10.1% and 30.5%, respectively, from the year-ago reported number