Amid some pretty tricky earnings updates from retailers, Gap (GAP) seems to be standing out as it benefits from a strong turnaround in its core business and efforts to diversify its sourcing mean it’s not too worried about Donald Trump’s tariffs.
Speaking on the earnings call with analysts, CFO Katrina O’Connell said the company sources less than 10% of products from China and less than 1% from Mexico and Canada combined. Announcing upbeat forecasts for the 2025 Fiscal year, she said any impact on the company’s margins from tariffs would be “small.”
Her remarks come after the White Houses imposed an additional 10% tariff on China this week, as well as 25% tariffs on Mexico and Canada, although these have been rolled back significantly in the last two days with a series of exemptions.
Whatever happens, Gap CEO Richard Dixon said the company’s supply chain was ready to handle tariffs and was flexible and resilient enough to cope with “a number of disruptions” last year. “This will serve us well as we continue to navigate a highly dynamic environment, top of mind being tariffs,” said on the call.
GAP Gaps Up
GAP stock surged almost 18% in the premarket trading session on Friday after its earnings beat expectations the clothing retailer issued upbeat guidance.
Gap sees total company sales rising between 1% to 2% versus Wall Street expectations of a 1.7% increase, while it also forecast operating income to grow between 8% and 10% from $1.1 billion in 2024. Its Fiscal fourth quarter sales fell by 3% year over year to $4.1 billion, which was better than the $4.07 billion anticipated on Wall Street.
The company appears to be benefiting from a strong turnaround at the core Gap division thanks to better marketing. “The brand campaigns and collaborations are attracting a new generation to Gap,” added Dixon. Core GAP comparable sales rose 7% in the quarter, the best quarterly growth in three years. The Old Navy brand also seems to be making progress after the appointment of Zac Posen as chief creative officer of in February 2024. Comparable sales at Old Navy rose 3%, while Banana Republic was up 4%.
The stock’s jump and positive noises on the year ahead come after some softer retailer guidance from the likes of Walmart (WMT) and Target (TGT). Costco (COST) also missed analyst expectations with its earnings yesterday. Meanwhile it was reported yesterday that Walmart was asking some Chinese suppliers to reduce prices.
Is GAP Stock a Buy?
GAP stock has a consensus Moderate Buy rating among eight Wall Street analysts, based on six Buy and three Hold recommendations issued in the last three months. The average GAP price target of $29.11 implies nearly 50% upside from current levels. These ratings may change after the company’s latest financial results.
