Gap's Financial Discipline Shines: Analyst Highlights Robust Inventory Control And Cost Savings For 2H23

Telsey Advisory Group analyst Dana Telsey reiterated the Market Perform rating on Gap, Inc. GPS, with an unchanged price target of $11.

GPS will report second quarter (ended July) earnings results after the market close on Thursday, August 24.

Telsey is particularly encouraged by inventory control (inventories were down double-digits for two consecutive quarters) and cost management ($150 million in annualized cost savings to be realized in 2H23).

The analyst expects 2Q23 EPS of $0.05 vs. $0.08 last year, and the consensus of $0.10. 

On the top line, the analyst expects total sales to decrease 6.4% YoY to $3.61 billion, slightly above the consensus estimate of down 7.2% YoY to $3.58 billion. 

Within the top line, the analyst forecasts a total GPS comp of (4.1%) vs. the consensus of (4.3%) and (10.0%) last year. 

Telsey anticipates 150 bps of gross margin expansion to 37.5%, vs. the consensus of 37.8% (up 180 bps YoY). Company guidance called for the gross margin to expand YoY from last year's 36.0% margin.

In addition, the analyst's SG&A forecast stands at 36.3%, deleveraging 200 bps YoY. 

Altogether, Telsey forecasts 50 bps of operating margin contraction YoY to 1.2%, as compared to last year's 1.7% margin. 

The analyst forecasts a two-year forward EPS of $0.86, which compares to the historical median NTM multiple of 12.5x and the recent multiple of 14.3x.

Price Action: GPS shares are trading higher by 2.02% to $10.35 on the last checked Friday.