Gap’s expansion into beauty and accessories viewed as strategic by Jefferies

Investing.com - Jefferies has reiterated its Hold rating and $22.00 price target on Gap, Inc. (NYSE:GAP) stock, currently trading at $23.41, highlighting the retailer’s expansion into beauty and accessories as a strategic move rather than merely an opportunistic one. The stock has shown strong momentum with a 14.3% return over the past six months, while maintaining an attractive P/E ratio of 9.9x.

According to Jefferies, this expansion represents a deliberate extension of Gap’s transformation strategy, with the potential to become a meaningful growth driver for the company over time. InvestingPro data shows the company maintains strong financial health with a current ratio of 1.68, indicating solid liquidity to support its strategic initiatives.

The financial services firm noted that Gap possesses several advantages supporting this initiative, including strong consumer validation, substantial financial flexibility with $2.4 billion in cash, and a track record of proven execution.

Jefferies advised investors to monitor the traction of pilot rollouts and margin contribution from these new categories over the next 12-18 months to gauge their success.

The firm cautioned that while the strategy appears sound, the financial impact of these initiatives may take time to materialize in Gap’s profit and loss statements.

In other recent news, Gap Inc. reported its second-quarter 2025 earnings, surpassing analyst expectations with an earnings per share (EPS) of $0.57, while revenue aligned with projections at $3.73 billion. Despite the earnings beat, the company’s stock experienced fluctuations in trading. Additionally, Telsey Advisory Group adjusted its price target for Gap Inc. to $24.00 from $26.00, maintaining a Market Perform rating. The adjustment was influenced by anticipated tariff pressures, which are expected to impact the retailer’s margins by approximately 200 basis points in the third and fourth quarters of fiscal year 2025. Telsey Advisory Group noted that, even with mitigation strategies, the net effect on operating margin for the full fiscal year is projected to be 100 to 110 basis points. These developments highlight ongoing challenges and strategic adjustments within Gap Inc.

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