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GPS – Market expectations are for Uniform ROA to recover, but management may be concerned about margins, growth, and their investments

June 25, 2021

  • The Gap, Inc. (GPS:USA) currently trades above corporate averages relative to UAFRS-based (Uniform) earnings, with a 23.3x Uniform P/E. At these levels, the market has bullish expectations for the firm, but management may be concerned about margin guidance, volume and customer growth, and their marketing and brand investments
  • Specifically, management may lack confidence in their ability to sustain transaction volume and customer growth at Old Navy, efficiently manage costs, and expand product margins. Moreover, they may be concerned about supply chain headwinds, the impact of pandemic-related store closures, and the progress of their Gap brand improvement initiatives. Management may also lack confidence in their ability to capitalize on brand growth opportunities, pursue demand-generating investments, and maintain their digital presence, especially in North America. Furthermore, they may be concerned about the sustainability of Old Navy’s dominance in the kids and baby space, and they may lack confidence in their ability to establish a market presence in Europe, particularly with Gap. Additionally, management may be concerned about the potential of Old Navy’s intimates launch, Yeezy Gap, and their full store rationalization program