Gap's CEO gets praise for turnaround as retailer's stock rises on analyst upgrade

MW Gap's CEO gets praise for turnaround as retailer's stock rises on analyst upgrade

By Steve Gelsi

Gap's stock wins an upgrade to outperform from JPMorgan as an analyst praises CEO Richard Dickson's 'reinvigoration' of store brands

Gap Inc.'s stock rose Monday as the retailer won an upgrade from JPMorgan Chase analyst Matthew R. Boss, who praised efforts by Chief Executive Richard Dickson to inject life into the store's brands and gain market share.

Gap's stock $(GAP)$ rose 4.2% after Boss boosted his rating on the retailer's shares to overweight from neutral and raised his price target to $30 a share from $28 a share.

With Dickson running the company for about a year and a half, GAP has achieved revenue growth in the last four quarters and gained market share, Boss said in a Monday research note.

Along with "maintaining financial and operating rigor," Dickson has strengthened the retailer's operating platform and energized its culture, Boss said.

The company's Old Navy brand may also gain additional market share from ailing retailer Kohl's Corp. $(KSS)$, Boss said.

In a meeting with JPMorgan, Dickson said the company has stuck to a "proven playbook built across each brand to provide trend-right product, compelling stories in store, online and in culture, a media mix that's driving relevance, engaging omnichannel experiences, and much better execution."

Boss pointed to one example in the Gap brand's Give Your Gift holiday campaign, which has drawn a "great response" from shoppers.

Gap Chief Executive Dickson and Financial Chief Katrina O'Connell told analysts at JPMorgan that they expect fourth-quarter revenue to increase 1% to 2%. They also hope to achieve sales growth in the low-to-mid single digits as part of the "next leg" of Dickson's strategy, Boss said.

Some of JPMorgan's bullishness around Gap's stock came from comments from management that the 2024 holiday season is off to a strong start.

Comparable-store sales trends improved in the first half of November due to cooling weather, along with an emphasis on merchandising and marketing, Boss said.

Broken down by brand, Old Navy stores will feature enhanced store visuals, holiday shops and prominent display of its Jingle Jammies clothing.

The Gap stores will "lean into increased customer engagement through marketing campaigns/collaborations," Boss said.

Banana Republic stores will boost shelf space for basic apparel, with a "more balanced price architecture in women's, more compelling dress assortment and a stronger cashmere point of view" as well as a shift in marketing dollars toward social/influencer efforts, Boss said.

Athleta stands out as a "growth brand" for Gap. Boss said.

All told, JPMorgan's Boss is projecting companywide same-store sales growth at Gap of at least 6% into fiscal 2025/26.

Boss remains more optimistic about Gap's 2025 earnings than other Wall Street analysts. He raised his fiscal 2025 adjusted profit estimate for Gap to $2.30 a share, above the FactSet consensus estimate of $2.14 a share.

The estimate assumes revenue growth of about 3.1% by 2026 and a wider fiscal annual operating margin of 7.9%, up by 0.4%, from earlier estimates and ahead of the analyst consensus view of a 7.6% operating profit margin, Boss said.

"After roughly 1.5 years with CEO Dickson at the helm, GAP has driven four consecutive quarters of revenue growth ... driven by seven consecutive quarters of market share gains...and a strengthened balance sheet," Boss said.

Including Monday's moves, Gap's stock has risen 22.3% in 2024, while the S&P 500 SPX has risen by 26.7%.

-Steve Gelsi

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December 02, 2024 10:51 ET (15:51 GMT)

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