Gap Falls after Barclays Warns on Higher Promotional Activity, Lapping Stimulus Comparables

Seeking Alpha2022-02-03

Gaps(NYSE:GPS)fell in early trading after Barclays lowered its rating to Equal Weight from Overweight.

Analyst Adrienne Yih pointedto the firm's proprietary promo analysis suggesting a negative inflection to "deeper" year-over-year promotions at Old Navy, Gap, and Athleta, as well as the retailer's exposure to a sub=$75,000 household income, which is noted to have benefited materially from 2021 stimulus. Of note, Yih also warned on an expected build in safety stock of inventory by Gap (GPS) through the first half of the year following recent imbalances.

Barclays on Gap's margins: "During January, our promotional checks showed Old Navy and Gap are running some of the absolute deepest promotions amongst retailers for this time of year. Coupling the potential for slowing demand (as suggested by deepening promotions) with inbound increases in inventory levels through 2Q22, we see increasing risk for future merchandise margin erosion."

Barclays assigned a price target of $15 to the retailer. Shares of Gap (GPS) shed4.24%in premarket trading to $16.93. The 52-week range for GPS is $15.45 to $37.63.

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