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Morningstar's Gap Inc Stock Analysis

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No-Moat Gap’s Problems Are Undeniable, but Old Navy and Athleta Align With Market Trends

David Swartz Equity Analyst

Business Strategy and Outlook

| David Swartz |

We believe Gap’s family of brands lacks an intangible asset or cost advantage that would provide an economic moat. The company has experienced years of inconsistent results and has recently suffered major merchandising and supply chain woes. Still, Gap has fair liquidity, and we view its Old Navy chain as a solid business. According to Euromonitor, Old Navy is the largest individual apparel brand by retail sales in the United States, and, despite ongoing issues, we view Gap’s goal of $10 billion in annual sales for the label (up from $9.1 billion in 2021) as achievable in 2026. Old Navy, though, faces considerable competition in the discount apparel space from wide-moat Amazon, other e-commerce, outlet stores, and discounters like narrow-moat Ross Stores. Meanwhile, Old Navy already has more than 1,250 North America stores, so much of its future growth is expected to come from stores in smaller, unproven markets. As we are wary of the potential of these markets, we do not view Gap’s stated goal of 2,000 Old Navy stores in North America as reasonable. Rather, we forecast it will have about 1,500 locations in 10 years.

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Gap Inc's Company Profile

Business Description

Gap retails apparel, accessories, and personal-care products under the Gap, Old Navy, Banana Republic, and Athleta brands. Old Navy generates more than half of Gap’s sales. The firm also operates e-commerce sites, outlet stores, and specialty stores under various Gap names. Gap operates nearly 3,000 stores in North America, Europe, and Asia and franchises about 600 stores in Asia, Europe, Latin America, and other regions. Gap was founded in 1969 and is based in San Francisco.

Two Folsom Street
San Francisco, CA, 94105
T +1 415 427-0100
Industry Apparel Retail
Most Recent Earnings Apr 30, 2022
Fiscal Year End Jan 28, 2023
Stock Type High Yield
Employees 97,000

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