Gap Inc. (GAP) claims it’s back. Investors are still not buying big claims.
“More high-net-worth consumers are choosing Gap,” CEO Richard Dixon told Yahoo Finance, adding that the no-name brand is regaining its pop culture status through red carpet moments and celebrity collaborations.
A pivot toward an affluent demographic helped the brand post its eighth consecutive quarter of positive comparable sales, even as the broader retail environment remains treacherous. But geopolitical challenges remain, including rising tariffs that pushed 200 basis points above the gap margin this quarter.
Wall Street took notice. Shares of Gap Inc fell nearly 13% after the company’s Q4 earnings report, which revealed disappointing sales figures from Atlanta. These sales suggest that a cautious full-year outlook and continued brand weakness are currently overshadowing the name brand’s resurgence.
On the one hand, the Gap brand is firing on all cylinders, with comparable sales up 7% – matching last year’s growth. The company also ended the year with $3 billion in cash and achieved its highest gross margin in a quarter century.
On the other hand, the company’s overall sales growth remains modest, and guidance for fiscal 2027 fell short of analysts’ expectations.
Atleta remains the most important weight in the stock. While Dixon says there is “product resonance” at Gap, Atleta is facing a 10% decline in comparable sales for the fourth quarter.
In a research note, Jefferies analyst Corey Tarlow pointed out that “Athletic headwinds are expected to continue,” with sales declines likely continuing into the first half of 2027. Because of this continued traction, Jefferies lowered its price target to reflect a “revised outlook” and a lower EPS estimate of $2.30, down from $2.24. Still, the company set a $32 price target, indicating an upside of 18%.
Stressed consumers remain an important issue. Retailers are facing a new wave of economic anxiety with the Iran war. Dixon acknowledged that consumers are feeling the pinch on rising utility bills due to higher gas prices and Middle East instability.
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To help counter the pressure, Gap is relying on a $150 million cost-savings plan and AI. Dixon claims that AI is already reshaping how companies design and price products.
And the company is looking for growth elsewhere, particularly in the beauty category. Gap entry to Beauty, starting with pilots in the Old Navy, could open up “a meaningful top and bottom line over time,” Tarlo noted.
