Citi cuts Gap stock price target to $30, maintains buy rating

On Friday, Citi analyst Paul Lejuez announced a reduction in the price target for Gap Inc. (NYSE:GAP) shares from $33.00 to $30.00, while reaffirming a Buy rating on the stock. The adjustment follows Gap’s first-quarter earnings per share (EPS) of $0.51, which surpassed consensus estimates of $0.46, attributed to stronger sales and lower selling, general, and administrative expenses (SG&A).

Gap brand comparable sales increased by 5%, which, despite being solid, fell short of market expectations that ranged from high-single-digits to low-double-digits (HSD-LDD). Old Navy (ON), on the other hand, saw a 3% rise in comparable sales, exceeding both consensus and market expectations. The significance of Old Navy’s performance lies in its larger contribution to Gap’s overall sales and profitability, making it a favorable tradeoff according to the analyst. With annual revenue of $15.1 billion and a gross profit margin of 41.3%, Gap maintains strong operational efficiency. InvestingPro subscribers can access 12 additional key insights about Gap’s performance and valuation metrics.

Management at Gap Inc. has reiterated its fiscal year 2025 guidance, excluding tariffs, to be between $2.30 and $2.40. However, tariffs are expected to pose a $100-150 million headwind to second-half cost of goods sold (COGS), post-mitigation efforts. This implies that with tariffs, the guidance adjusts to a range of $2.00 to $2.20. Lejuez suggests that the tariff assumptions include a degree of conservatism, with only 55% mitigation considered and no pricing offset.

The analyst’s commentary highlighted Gap’s strong execution, noting consistent top-line performance at both Old Navy and Gap, as well as gross margin (GM) upside and cost discipline. Despite expectations for Gap’s stock to face short-term pressure due to the Gap brand not meeting market expectations and the guidance on tariffs, Lejuez believes the risk/reward ratio is particularly attractive, especially considering the stock’s pre-market weakness. InvestingPro analysis shows the stock trading near its Fair Value, with five analysts recently revising their earnings estimates upward. For detailed valuation metrics and comprehensive analysis, investors can access Gap’s Pro Research Report, part of InvestingPro’s coverage of over 1,400 US stocks.

In other recent news, Gap Inc. reported better-than-expected financial results for the first quarter of fiscal year 2025. The company achieved earnings per share of $0.51, surpassing the forecast of $0.44, and generated revenue of $3.46 billion, exceeding the anticipated $3.41 billion. Despite these positive outcomes, the company’s stock experienced a decline, which may be attributed to broader market concerns. Gap Inc. also saw a 2% increase in net sales, with digital sales contributing significantly, accounting for 39% of total net sales. The company continues to focus on brand reinvigoration and digital sales growth, even as it navigates challenges such as tariffs and competitive pressures.

Looking forward, Gap Inc. anticipates a 1-2% increase in net sales for fiscal 2025, with an expected operating income growth of 8-10%, excluding the impact of tariffs. The company estimates that tariffs could impact operating income by $100 to $150 million. On the analyst front, Gap Inc. did not receive any specific upgrades or downgrades, but the company’s strategic focus and financial discipline were highlighted. Overall, Gap Inc. remains committed to its long-term growth strategy, emphasizing brand revitalization and operational efficiencies.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.