Gap Inc. (GAP) claims it’s back. Investors aren’t buying the big claim yet.
“More high-income consumers are choosing Gap,” CEO Richard Dickson told Yahoo Finance, noting the namesake brand is reclaiming its pop-culture status through red carpent moments and celebrity collaborations.
The pivot toward a wealthier demographic helped the brand post its eighth consecutive quarter of positive comparable sales, even as the broader retail environment remains treacherous. But geopolitical challenges remain, including rising tariffs that siphoned 200 basis points from Gap’s margins this quarter.
Wall Street took notice. Gap Inc. shares tumbled roughly 13% following the company’s Q4 earnings report, which revealed disappointing sales figures from Athleta. This sell-off suggests that a cautious full-year outlook and persistent brand weaknesses are currently overshadowing the namesake brand’s resurgence.
On one hand, the Gap brand is firing on all cylinders, with comparable sales jumping 7% — matching last year’s growth. The company also ended the year with a $3 billion cash pile and achieved some of its highest gross margins in a quarter-century.
On the other hand, total company sales growth remains modest, and fiscal year 2027 guidance fell short of analysts’ expectations.
The most significant weight on the stock remains Athleta. While Dickson says there’s “product resonance” at Gap, Athleta is languishing with a 10% decline in comparable sales for the fourth quarter.
In a research note, Jefferies analyst Corey Tarlowe pointed out that “Athleta headwinds are expected to continue,” with sales declines likely persisting through the first half of 2027. Because of this continued drag, Jefferies lowered its price target to reflect a “revised outlook” and a lower EPS estimate of $2.30, down from $2.45. Still, the firm set a $32 price target, citing 18% upside.
The pressured consumer remains a key issue. Shoppers are facing a new wave of economic anxiety with the Iran war. Dickson acknowledged that consumers are feeling the pinch of higher gas prices and rising utility bills driven by Middle East instability.
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To help counter the pressure, Gap is leaning into a $150 million cost savings plan and AI. Dickson claims AI is already reinventing how the company designs and prices products.
And the company is looking for growth elsewhere, specifically in the beauty category. Tarlowe noted that Gap’s entry into beauty, starting with pilots at Old Navy, could unlock “meaningful top- and bottom-line upside over time.”