Key Takeaways
- Gap is scheduled to release quarterly earnings Thursday after market close, with Wall Street projecting EPS between $0.48-$0.49 and revenue of $3.7 billion.
- Shares have declined significantly since late May following disappointing Old Navy and Athleta performance, though the stock surged 6% to $21.36 on Tuesday.
- Options market activity shows bullish positioning, with call volume exceeding put volume (20,328 calls versus 13,242 puts) and concentrated interest at $23-$24 strike levels.
- Goldman Sachs holds a Buy rating with a $25 price objective, while the average analyst price target stands at $25.58.
- Wall Street remains evenly divided on the stock, with 50% of analysts bullish and the remaining 50% maintaining neutral Hold ratings.
The past several months have proven challenging for Gap. Shares tumbled following the company’s first-quarter earnings release in late May, when executives highlighted decelerating growth at Old Navy and underperformance at Athleta. The company specifically pointed to women’s dresses as a merchandise category that missed expectations.
Since those May peaks, the stock has retreated by double-digit percentages. However, momentum appears to be building ahead of Thursday’s quarterly report. Shares surged 6.02% to reach $21.36 on Tuesday, positioning the stock approximately halfway through its 52-week trading range of $18.11 to $29.36.
Wall Street consensus calls for earnings between $0.48 and $0.49 per share alongside revenue of $3.7 billion when the company reports after Thursday’s closing bell.
Expectations entering this quarter are notably more modest compared to May. Whether this represents a buying opportunity or a potential pitfall depends entirely on the actual results delivered.
Options Activity Indicates Positive Sentiment
The options market is showing significant engagement. Trading volume reached 33,570 contracts by early Tuesday afternoon, substantially exceeding typical activity levels. Call options dominated trading, outnumbering puts by a considerable margin at 20,328 calls compared to 13,242 puts.
The most concentrated trading occurred in August 28 calls at the $23, $23.50, and $24 strike prices, each attracting approximately 1,500 contracts. Among bearish bets, the $17 and $18 puts experienced notable trading volumes.
Open interest data reinforces this bullish tilt. The largest outstanding position is the September 18 $24 call with 7,448 contracts, with the September 4 $21 put ranking second at 6,437 contracts.
The stock’s implied volatility over the next three months stands at 49.57%, closely aligned with its 90-day realized volatility of 48.8%. This indicates traders anticipate movement, though not an extreme reaction.
Based on options pricing, traders view moves beyond $24 on the upside or below $18 on the downside as critical levels that could drive significant momentum following the earnings announcement.
Wall Street’s Perspective
Goldman Sachs reaffirmed its Buy recommendation on August 20, although the firm reduced its price target to $25. The consensus price target among 18 analysts tracked by Investing.com currently sits at $25.58.
According to InvestingPro’s fair value analysis, Gap is worth approximately $24.62, suggesting roughly 15% potential upside from present levels.
Nevertheless, analyst conviction remains divided. Among those monitored by FactSet, precisely 50% maintain bullish ratings, while the remaining 50% rate the stock at Hold or equivalent. This split opinion creates uncertainty heading into the earnings release.
Supporting the bullish case, consumer discretionary spending has demonstrated greater resilience than anticipated despite elevated gas prices. Gap’s delivery collaboration with DoorDash may provide additional support for back-to-school season sales.
Working against the company, both Target and TJX recently reported underwhelming apparel sales figures, creating a challenging comparative environment for Gap’s results.
Gap’s share price currently trades at $21.38, representing a 4.96% gain for the session.
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