Gap Inc. (GAP) has recently outperformed predictions for its fiscal fourth-quarter results, with earnings per share at $0.54, substantially exceeding Wall Street’s forecasts of $0.38. Despite revenue falling 3% year-over-year, the total of $4.15 billion surpassed analysts’ expectations. The company also saw operational improvements, with an operating margin of 6.2% compared to 5% last year. However, certain brands within the company, such as Athleta, faced challenges. Nevertheless, the market response to the news has been positive, with the shares surging over 18% on Friday.
Top and Bottom-line Beats
The Gap operates diverse brands, such as Gap, Old Navy, Banana Republic, and Athleta, designed to cater to different demographics and fashion needs. A significant aspect of its business blueprint is its omnichannel strategy that merges the physical store and online shopping experiences. This approach has become increasingly crucial, especially considering the continuous surge in e-commerce’s significance, compared to the conventional in-person retail sales.
In the fourth quarter of FY2024, the firm reported a 3% drop in net sales, landing at $4.1 billion. This decrease included a 7% negative impact related to calendar shifts and decreased in-store and online sales by 4% and 2%, respectively. The gross margin remained flat compared to the previous year at 38.9%. Operating expenses were reported at $1.4 billion, with an operating income of $259 million and a net income of $206 million. Diluted earnings per share came in at $0.54.
Looking at the entire year of 2024, the company’s net sales rose by 1%, totaling $15.1 billion. Store sales remained flat across the year while online sales showed a 4% increase. The operating expense reduced by 2% compared to the previous year, down to $5.1 billion. The firm also highlighted a net income of $844 million and diluted earnings per share of $2.20. Cash and cash equivalents increased by 38%, ending the year at $2.6 billion.
The company paid a fourth-quarter dividend of $0.15 per share, amounting to $56 million. Moving forward, the company’s board of directors approved a 10% increase in the first quarter fiscal year 2025 dividend to $0.165 per share. For fiscal year 2025, the company is projecting a 1% to 2% growth in net sales and an 8% to 10% growth in operating income. The outlook also indicates capital expenditures of approximately $600 million and an estimated 35 net store closures.
Analysts Cautiously Optimistic
Analysts following the company have responded with a cautiously optimistic outlook. For instance, TD Cowen analyst Jonna Kim reiterated a Buy rating on Gap while setting a price target of $27.00 on its shares, noting the company’s exemplary merchandising practices and financial management. Despite a potentially difficult macroeconomic climate and tough comparisons during H1 2025, Gap is set to revitalize its brands. The business’s guidance is seen as reasonable, with potential for unexpected positives. Gap’s Q4 2024 was impressive, with significant comparable sales growth in Gap and Old Navy supporting a positive market response. The management team is showing confidence in their merchandising strategy, especially in favorably-weathered areas. Gap’s allocation of capital — in organic growth investments, increased dividends, and strategic share buybacks — is anticipated to boost shareholder value.
Gap Inc. is rated a Moderate Buy overall, based on the recent recommendations of 13 analysts. The average price target for GAP stock is $28.54, which represents a potential upside of 23.28% from current levels.
