Analyst Note| David Swartz |
Following similar reports by other apparel and footwear retailers, no-moat Gap greatly outperformed all sales and earnings expectations in 2021’s first quarter. Like many others, it benefited from pent-up demand, government stimulus, and low markdown rates due to low industry inventories. However, we think these factors will fade in importance as the year progresses. Nonetheless, we expect to raise our $22.50 per share fair value estimate by a high-single-digit percentage due to the first-quarter outperformance and renewed momentum in the business. Still, we view Gap’s shares, up sharply over the past year, as overpriced.