Gap’s Namesake Brand and Old Navy Show Signs of Resilience After Years of Tumult

We believe Gap lacks an intangible asset or cost advantage that would provide an economic moat. The company has experienced years of inconsistent results. Still, Gap has fair liquidity, and we view its Old Navy nameplate as a solid business. According to Euromonitor, it is the largest individual apparel brand by retail sales in the US, and, despite ongoing issues, we view Gap's goal of $10 billion in annual sales for Old Navy (up from $8.4 billion in 2024) as achievable by the end of this decade. The concept, though, faces considerable competition in the discount apparel space and already has about 1,250 North America stores, so much of its future growth is expected to come from stores in smaller, unproven markets. As we are wary of the potential of these markets, we do not view Gap's stated goal of 2,000 Old Navy stores in North America as reasonable. Rather, we forecast it will add about 200 stores over the next 10 years.