© Reuters Gap, Inc. (GPS) Upgraded at Barclays as Major Risk Factors ‘Now Well Known’
By Sam Boughedda
Shares of Gap Inc (NYSE:) are up over 5% in early Tuesday trading after it was upgraded to Equal Weight from Underweight at Barclays.
A Barclays analyst also raised the firm’s price target on the stock to $9 from $6. She said in a research note that they believe the major risk factors to the story are “now well known,” and there is “neutral-to-positive headline risk at least through year-end as Gap takes measures to turn the business.”
“We believe that the sales-to-inventory growth spread at the end of 2Q22 (inventory growth 44% faster than sales, which was only slightly worse than 1Q22’s 41%) will be at its maximum negative spread as GPS consciously works down inventory. The company is taking measures to aggressively reduce the inventory by liquidating it through markdowns, packing it away for use next year, and dramatically reducing future receipts,” wrote the analyst.
However, she added that the Gap division has been an “unsuccessful decades-long turn in progress,” and they believe it will continue to struggle as the Gap brand fails to resonate with Millennial and Gen Z demographics, who will be the driving force of consumer behavior and dollar spend over the next couple of decades.
“While we do not see any immediate fix to the several issues plaguing GPS and acknowledge that fundamentals could get worse given weakening demand and cotton input costs on the rise, we do see the company taking significant measures to stabilize and improve the business,” she explained.
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