Digital And Sustainable Trends Will Foster Long Term Value

Gap’s consensus price target has been reduced to $24.51 as analysts revise forecasts lower on persistent margin compression from tariff pressures, limited pricing power, and less favorable operating margin prospects, despite fair current valuation and some optimism for brand-driven upside.

Analyst Commentary

• Bearish analysts are lowering price targets due to increased tariff pressures, which are compressing operating margins and diminishing profitability expectations through fiscal 2026.
• Macro uncertainty is making the prior optimistic, "blue-sky" scenarios for double-digit operating margins unattainable.
• Several analysts note Gap’s limited pricing power, indicating the company cannot fully pass higher tariffs on to consumers, leading to downward adjustments in risk/reward perception.
• Revised earnings estimates reflect the impact of a blended 21% tariff rate, with cuts for FY25 and FY26 earnings forecasts; however, current valuation is viewed as fair relative to peers, given ongoing margin pressure but solid sales momentum.
• Bullish analysts highlight potential for further upside if consumer demand remains resilient, underappreciated brand strength at Gap and Old Navy, and possible turnaround at Banana Republic and Athleta supporting topline and margin growth.

What's in the News

• Gap provided earnings guidance for fiscal 2025, expecting flat net sales year-over-year for Q2 and 1% to 2% net sales growth for the full year.
• The company repurchased 3,609,057 shares for $69.51 million from February to May, completing the buyback program with a total of 36,394,176 shares repurchased for $669.27 million.

Valuation Changes

Summary of Valuation Changes for Gap

• The Consensus Analyst Price Target has fallen slightly from $25.51 to $24.51.
• The Future P/E for Gap has fallen slightly from 13.16x to 12.73x.
• The Net Profit Margin for Gap remained effectively unchanged, moving only marginally from 5.86% to 5.80%.