Bull of the Day: Gap Inc. (GAP)

Core Viewpoint - Gap Inc. is optimistic about the 2024 holiday season, expecting double-digit earnings growth this year [1] Financial Performance - Gap reported third quarter fiscal 2024 earnings of $0.72, beating the Zacks Consensus Estimate by $0.16 [2] - This marks the seventh consecutive earnings surprise for the company [3] - Net sales increased by 2% to $3.8 billion, with online sales rising by 7%, now constituting 40% of total sales [4] - Comparable sales improved by 1% year-over-year, recovering from a 2% decline in the same quarter last year [4] Brand Performance - Gap, Banana Republic, and Athleta showed improvements in comparable sales [5] - Gap's comparable sales rose by 3%, rebounding from a 1% decline in 2023, driven by a strong product mix [6] - Banana Republic's comparable sales decreased by only 1%, a significant improvement from an 8% decline last year [6] - Athleta's comparable sales increased by 5%, recovering from a 19% drop last year, attributed to successful new products and marketing [6] - Old Navy's comparable sales were flat, facing tougher comparisons and weather-related challenges [7] Guidance and Analyst Sentiment - Gap raised its full-year sales, operating income growth, and gross margin guidance, expressing confidence in the upcoming holiday season [8] - Analysts have revised earnings estimates higher for fiscal 2024 and fiscal 2025, with the fiscal 2024 estimate increasing to $2.00 from $1.87, indicating a 39.9% growth from $1.43 last year [8] - The fiscal 2025 estimate also increased to $2.11, reflecting a more conservative growth outlook of 5.7% [9] Valuation Metrics - Gap shares have risen by 16.3% year-to-date but have not yet returned to pre-pandemic highs [12] - The company has a forward price-to-earnings (P/E) ratio of 12.1, indicating it is undervalued [12] - With rising earnings, Gap has an attractive PEG ratio of 1.09, suggesting a combination of growth and value [13] - The company is also shareholder-friendly, offering a dividend of $0.60 per share, yielding 2.5% [13] Investment Consideration - For investors seeking turnaround opportunities in specialty retail, Gap is recommended as a strong candidate [14]