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No-Moat Gap’s Sales Were Light in Q4 but 2021 Guidance Looks Reasonable; Shares Fully Valued

David Swartz Equity Analyst

Analyst Note

| David Swartz |

Continuing to feel some impact from COVID-19 while downsizing (228 net Gap Global and Banana Republic stores closed in 2020), no-moat Gap underperformed our estimate of 1% growth with a sales decline of 5% in the fourth quarter of 2020. Still, its profit margins were better than we had forecast, and its 2021 outlook is in line with our expectations. We expect to lift our per share fair value estimate of $21 by a mid-single-digit percentage, but view Gap’s shares as slightly overvalued.

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Company Profile

Business Description

Gap retails apparel, accessories, and personal-care products under the Gap, Old Navy, Banana Republic, Athleta, and Intermix brands. Old Navy generates more than half of Gap’s sales. The firm also operates e-commerce sites, outlet stores, and specialty stores under various Gap names. Gap operates about 3,000 stores in North America, Europe, and Asia and franchises about 600 stores in Asia, Europe, Latin America, and other regions. Gap was founded in 1969 and is based in San Francisco.

Two Folsom Street
San Francisco, CA, 94105
T +1 415 427-0100
Sector Consumer Cyclical
Industry Apparel Retail
Most Recent Earnings Jan 31, 2021
Fiscal Year End Jan 29, 2022
Stock Type Cyclical
Employees 117,000