JPMorgan says this retail turnaround story is on track

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JPMorgan says this retail turnaround story is on track

JPMorgan has renewed confidence in Gap after the firm held a virtual investor meeting with company management. Analyst Matthew Boss reiterated the clothing retailer as overweight and kept his target price of $29 per share unchanged. That target suggests shares could jump nearly 30% from their latest close. Shares of Gap — which owns Gap, Old Navy, Banana Republic and Athleta — are down 5.6% this year, but have rebounded more than 8% this quarter. The stock had declined after Gap said in late May, during its first-quarter earnings report, that tariffs could impact its business by $100 million to $150 million, if they remain in effect. Gap still beat first-quarter expectations on the top and bottom lines, and the company’s namesake banner brand saw higher sales of $724 million, up 5% compared to last year. “The Bottom-Line: CEO [Richard] Dickson cited the team’s aspirations remain ‘high’ with regards to improving topline growth and operating margin expansion with the portfolio currently in Phase 1 of the turnaround, yet already on track to exceed pre-pandemic results on an underlying basis,” Boss wrote in a Monday note to clients. Dickson has focused most of his turnaround efforts on Gap, which has seen growth over the last couple of quarters fueled by “style, product newness, innovation and compelling marketing,” he has said. Boss highlighted that Gap and Old Navy together account for roughly 80% of sales, and for more than eight consecutive quarters have seen market share gains and new customer acquisition, notably across generations and income cohorts. Those gains more than offset the “fixing fundamentals” process still required at Banana Republic and Athleta, the analyst said. “As the “next leg” – CFO O’Connell cited a long-term model algorithm of low-to-mid-single-digit revenue growth and high-single-digit(+) operating income growth,” Boss said. That, combined with the company’s free cash flow generation and current dividend yield and share repurchase accretion, should lead to an annual total shareholder return in the mid-teens, he said. GAP 1Y mountain Gap stock performance over the past year. Wall Street has mixed ratings on the retailer. Of the 19 analysts that cover Gap, 10 rate the stock a strong buy or buy, while 9 give it a hold, according to LSEG.

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