The Gap, Inc. GAP reported fourth-quarter fiscal 2024 results, wherein the bottom and top lines surpassed the Zacks Consensus Estimate and grew year over year. GAP posted earnings of 54 cents per share, which surpassed the Zacks Consensus Estimate of 36 cents and jumped 10% from the prior-year quarter’s figure.

Quarterly results benefited from immense strength in brands and higher market share. The company gained market share for the eighth straight quarter. It has been smoothly progressing on the reinvigoration of its brands. The company has been actively managing costs. Management is focused on its strategic priorities, such as driving financial and operational rigor, reinvigorating the brands, reinforcing its operating platform and energizing culture.

Net sales inched down 3% year over year to $4.149 billion and beat the consensus estimate of $4.067 billion. This includes nearly seven percentage points of adverse impacts of weekly calendar shifts with respect to the loss of the 53rd week and the loss of the additional week.

Comparable sales (comps) rose 3% year over year. Online sales dipped 2% year over year, accounting for 41% of the total sales. Store sales also fell 4% year over year. Both online and store sales included adverse impacts associated with the loss of the 53rd week.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Impressively, Gap’s shares jumped 18.6% in the after-hours session yesterday, following robust fourth-quarter fiscal 2024 results. Shares of this Zacks Rank #3 (Hold) company have lost 6.9% against the industry’s 7% growth over the past year.

GAP’s Brand-Wise Sales & Comps Performance

Old Navy: Net sales at Old Navy Global edged down 4.3% year over year to $2.2 billion. Comps rose 3% year over year, as the brand is winning in major categories, including active and denim, with innovation bolstering market share gains. This marked the brand’s eighth straight quarter of market share gains, thus strengthening its leadership position as the number one specialty apparel brand and retailer in the United States. Sales for Old Navy Global beat our model’s estimate of $2.1 billion.

Gap Global: Net sales fell 2.7% year over year to $980 million while comps increased 7%, highlighting the fifth straight quarter of positive comps. The company’s brand-reinvigoration efforts aided the performance. We note that the brand generated its seventh straight quarter of market share gains. Sales for Gap Global surpassed our model’s estimate of $976.1 million.

Banana Republic: Net sales dropped 3.9% year over year to $545 million, while comps rose 4%. Sales exceeded our estimate of $531.8 million. The company’s focus on reestablishing the brand in its portfolio aided results.

Athleta: Net sales dropped 5.5% year over year to $396 million and comps also dipped 2%. Net sales were above our estimate of $391.9 million. Although the brand had a tough quarter, the company continues to reset the brand.

GAP’s Margins & Costs

The gross margin of 38.9% was flat year over year. Meanwhile, we estimated the adjusted gross margin to be 37.6%.

The merchandise margin grew 20 basis points (bps), benefiting from inventory-management efforts. Rent, occupancy and depreciation (ROD), as a percentage of sales, deleveraged 20 bps year over year. 

Further, the operating margin of 6.2% grew 120 bps in the reported quarter from last year’s adjusted operating margin. Our model anticipated an adjusted operating margin of 4.2%.

Operating expenses were $1.4 billion, down 6.7% year over year.

GAP’s Financial Health Snapshot

Gap ended the fiscal fourth quarter with cash and cash equivalents of $2.3 billion, up 21.1% from the year-ago period. As of Feb. 1, 2025, it had a total stockholders’ equity of $3.3 billion and a long-term debt of $1.5 billion.

As of Feb. 1, 2025, the company generated $1.5 billion in cash from operating activities and had a free cash flow of $1 billion. It paid cash dividends of $225 million and repurchased shares of $75 million in the 52 weeks ended Feb. 1, 2025. It had roughly $400 million available in its share repurchase authorization. The company’s board has announced an increase in its first-quarter fiscal 2025 dividend, raising it to 16.50 cents per share from the previous payout of 15 cents. This 10% hike underscores Gap’s commitment to delivering consistent value to its shareholders.

Capital expenditure was $447 million in fiscal 2024. For fiscal 2025, capital expenditure is expected to be $600 million.

As of Feb. 1, 2025, Gap had 3,569 stores in nearly 40 countries, of which 2,506 were company-operated. Net store closures for fiscal 2025 are likely to be about 35, with most of them at Banana Republic.

What to Expect From GAP in Fiscal 2025?

Management expects a dynamic landscape for fiscal 2025. With regard to tariffs, in fiscal 2024, the company had sourced less than 10% of its product from China and less than 1% of its product from Canada and Mexico combined. The fiscal 2025 view includes any anticipated margin with impacts, albeit small, from present actions related to such countries.

For fiscal 2025, management projects sales to grow 1-2% from $15.1 billion recorded in fiscal 2024. This includes an expected 30 bps from adverse impacts of foreign currency owing to a stronger U.S. dollar. This assumes continued strength at Old Navy and Gap, stabilizing performance at Banana Republic and a long recovery at Athleta. In the second quarter, the company will be lapping the two-percentage point gain last year from the higher revenues with respect to the credit card agreement.

The company forecasts the gross margin to rise slightly for the fiscal year on continued rigor and executional excellence. Almost equal amounts will come from ROD leverage and merchandise margin. Regarding SG&A, the company has been driving improvement in the cost structure, with roughly $150 million in cost savings. A part of cost saving will be reinvested in future growth and the balance is likely to offset inflation. It expects SG&A to leverage slightly in fiscal 2025.

For fiscal 2025, operating income is projected to rise 8-10% from the prior year’s figure of $1.11 billion. This includes an expected two percentage points of adverse impacts of foreign currency on a strong U.S. dollar. The effective tax rate is estimated to be roughly 26%. Net interest income is expected to be nearly $15 million compared with $25 million recorded in fiscal 2024.

For the fiscal first quarter, net sales are likely to be flat to up slightly from $3.4 billion seen in the year-earlier quarter. This includes a 50-bps of adverse foreign currency impacts. The gross margin is predicted to rise slightly year over year from 41.2% recorded in the prior-year quarter. SG&A is likely to leverage slightly in the first quarter. Operating expenses, as a percentage of sales, are anticipated to leverage slightly year over year.

Key Picks in Retail

We have highlighted three better-ranked stocks, namely Boot Barn BOOT, Urban Outfitters URBN and Deckers DECK.

Boot Barn, a lifestyle retail chain devoted to western and work-related footwear, apparel and accessories, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. 

The Zacks Consensus Estimate for Boot Barn’s current financial-year sales indicates growth of 14.9% from the year-ago figure. The company delivered a trailing four-quarter earnings surprise of 7.2%, on average.

Urban Outfitters, a fashion lifestyle specialty retailer, currently sports a Zacks Rank of 1. URBN delivered an average earnings surprise of 28.4% in the trailing four quarters.

The consensus estimate for Urban Outfitters’ current financial-year sales indicates growth of 5.9% from the year-ago figure.

Deckers, a footwear and accessories dealer, currently has a Zacks Rank #2 (Buy). DECK delivered an average earnings surprise of 36.8% in the trailing four quarters.

The Zacks Consensus Estimate for Deckers’ current financial-year sales indicates growth of 15.6% from the year-ago figure. 

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The Gap, Inc. (GAP) : Free Stock Analysis Report

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