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Supply Chain Woes Have Wrecked Gap’s 2021 but the Problems Should Be Temporary; Shares Undervalued

David Swartz Equity Analyst

Analyst Note

| David Swartz |

No-moat Gap badly missed our sales and profit margin expectations in 2021’s third quarter as production and transportation delays proved too much to overcome. Moreover, product shortages have continued into the critical holiday season, possibly leading to a fourth-quarter loss. However, Gap has taken measures to lessen the impact, and the situation in Vietnam (30% of Gap’s sourcing) has improved as factories have reopened, so we think the long-term outlook is unaffected. Thus, we do not expect a material change to our fair value estimate of $26.50 per share and view Gap, down 16% in post-marketing trading, as undervalued.

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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
Sector Consumer Cyclical
Industry Apparel Retail
Most Recent Earnings Oct 31, 2021
Fiscal Year End Jan 29, 2022
Stock Type Cyclical
Employees 117,000