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Gap Remains A Hold

Mar. 08, 2021 3:08 PM ETThe Gap, Inc. (GPS)14 Comments
Shock Exchange profile picture
Shock Exchange


  • Gap's quarterly revenue fell 5% Y/Y. Old Navy, its largest brand, remained a stalwart.
  • Online revenue increased 54%, proving the company's digital platform can compete.
  • Inventory grew, despite the decline in revenue. Inventory could remain elevated until the economy fully reopens.
  • GPS remains a hold.
  • This idea was discussed in more depth with members of my private investing community, Shocking The Street. Learn More »

The Gap, Inc. (NYSE:GPS) reported revenue of $4.42 billion, Non-GAAP EPS of $0.28 and GAAP EPS of $0.61. The company missed on revenue, yet beat on earnings. GPS is up in the high-single-digit percentage range post earnings. I had the following takeaways on the quarter.

Gap's Top Line Continues To Falter

COVID-19 practically caused business activity to ground to a halt in the first half of 2020. Retailers with a bricks-and-mortar strategy were forced to temporarily close stores to help stem the spread of the pandemic. In August, most of Gap's stores were reopened. However, the knock-on effects of COVID-19 still linger. The company has plans to reduce as many as 350 stores in order to make its physical locations more efficient. Gap may have to as more and more purchases are being made online.

For the quarter-ended January 2021, Gap's $4.4 billion in net sales fell 5% Y/Y.

Gap revenue. Source: Shock Exchange

Old Navy, Gap's largest segment, fell 5% Y/Y. Gap Global and Banana Republic Global each fell in the double-digit percentage range. Old Navy experienced 7% comparable sales growth in the face of store closures and operating restrictions due to COVID-19. It may have helped that over 90% of Old Navy's revenue was derived from the U.S. Several European countries re-instituted lockdowns during the quarter to combat the coronavirus; Old Navy was largely able to avoid these headwinds.

Revenue from Gap Global fell 19%, while comparable sales were down 6%. The Gap brand was negatively impacted by COVID-mandated store closures and restrictions in Canada, China, Europe and Japan. Banana Republic's sales and comparable sales both fell in the double-digit percentage range. The brand has struggled with providing the right mix of assortments to meet consumer demands.

Old Navy represented 54% of total revenue, up from 48% in the year-earlier period. This is the one brand that

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This article was written by

Shock Exchange profile picture
The Shock Exchange has a B.A. in economics and MBA from a top 10 business school. He has over 10 years of M&A / corporate finance experience. Currently head the New York Shock Exchange, financial literacy program based in Brooklyn, NY.His book, "Shock Exchange: How Inner-City Kids From Brooklyn Predicted the Great Recession and the Pain Ahead", predicted pain ahead for the U.S. economy and financial markets.In 2014 the law firm of Kirby, McInerney, LLP brought a class action lawsuit against Molycorp, Inc. for "materially misleading statements" in its financial statements. Kirby, McInerney used investigative journalism from the Shock Exchange to buttress its case. That's the discipline the Shock Exchange brings to every situation he covers for SA.

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Comments (14)

Daytrader77 profile picture
I am still hoping to get back in at $22 soon..
SkiManJamie profile picture
@Daytrader77 I don't see it going back to 22 unless there's a major setback operationally but I think it's a bit stretched right now relative to something like AEO which is cheaper and delivering better results.
Daytrader77 profile picture
@SkiManJamie people have taken profits.. it's a knee jerk reaction.. it's too stretched to get back in at this level..
SkiManJamie profile picture
@Daytrader77 like I said.. I also think it's too stretched at these levels but I think 22 is too much to hope for.
Daytrader77 profile picture
Taken profits will be back at $22s
Daytrader77 profile picture
Does anyone knows why the Earnings report has been moved to a later date June 2-7 2021. It's meant to be in early May 2021.

Is the company hiding something about their financial health?
SkiManJamie profile picture
@Daytrader77 not sure what you mean they moved it, it was never scheduled for early May. They're on an off-quarter cycle, last year 1Q ended on May 2nd and they reported on June 4th.
How about all the money GPS owes to the landlords they’ve refused to pay while their stores were open?
@REIT investors R us I agree, no one is talking about that. GAP keeps on increasing. If they truly are strapped for cash and can't afford the rent, issue some shares at this overvalued price and pay your debts.
SkiManJamie profile picture
Gap's fundamentals are atrocious compared to American Eagle. 4Q Revenue -5% vs -2%, adjusted Operating income -32% vs +38% but that's an easy compare for AEO because last year was a bad quarter, compared to 2 years ago, adjusted operating income -49% vs +4.8%. Ouch..
It’s running a bit rich right now.
Nobody’s gonna talk about how Kanye wants to be on the board of directors at gap and adidas? He’s serious and he is stalling the release. I think Gap Is a sell as well I have already doubled my money.
This author has been negative on the Gap as far back as Dec 2019 while the stock has been steadily rising ever since. Today GPS is at 52-week high. Just saying.
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