Gap Inc (GAP) Stock Forecast & Price Target

Gap Inc. reported a 3.0% year-over-year growth in total sales, reaching $3.942 billion, surpassing consensus expectations. The company ended the third quarter with $2.5 billion in cash and short-term investments, reflecting a 13% increase, indicating a strong liquidity position. Despite challenges such as a 5% rise in inventory levels due to tariff costs, Gap demonstrated strong progress in brand re-establishment, achieving better-than-expected sales and gross margin leverage driven by growth in average unit retail (AUR) and a 2% increase in online sales.

The financial outlook for Gap is negatively impacted by a notable decline in gross margin, which fell approximately 30 basis points to 42.4%, surpassing previous expectations for a larger drop of 150 to 170 basis points. Comparable sales experienced a significant year-over-year decline of 11% during the third quarter, following a 5% growth from the prior year, indicating ongoing challenges in maintaining revenue growth. Furthermore, the company has revised its expectations for gross margin contraction to 50 basis points year-over-year, primarily driven by persistent tariff pressures and a notable 70-basis point decrease in merchandise margin.