Gap Inc. (NYSE: GPS) rolled out the first product in this much-hyped clothing collection in collaboration with Kayne West last week. The bright blue puffer jacket was made available for pre-order, and it was a hit.
As anticipation grew, the Gap stock price went on an 84% run year to date, from $19.22 to a high of $36.33.
This first product in the Yeezy line sold for $200. Demand was so high, the website crashed. When the site came back online, the jacket sold out quickly.
But the Gap has much more in store this year than new Yeezy products. Today, we get into the latest developments with the Gap and whether you should buy Gap stock anytime soon.
We'll start with the company's recent performance.
The Latest Gap Stock Earnings Report
The Gap has staged an impressive recovery from pandemic lows.
Business is better than most anticipated at this stage of the recovery. As we would expect, Gap's 2021 first quarter was well above 2020 at the start of the pandemic. The impressive part of the recent earnings report is that profits exceeded 2019 levels by roughly 8%.
The Gap continues to close stores all over the world as it pushes to online sales. About 40% of sales in the recent quarter came from the online platform, and Gap wants to increase that percentage.
Digital sales grew a stunning 82% from 2019 levels as Gap has done an outstanding job of growing the e-commerce portion of the business.
It plans to move away from traditional shopping mall locations as quickly as it can. Current plans call for 30% of all mall locations to close by 2024. Management said that, by that time, it expects 80% of sales to come from off-mall and outlet locations and online sales.
At last month's investor meeting, Gap Management laid out its "Power Plan" to grow sales and expand margins. That plan includes continued rollout of higher-end Yeezy products during this year and next.
But, again, the Yeezy brand makes only a small part of the plan...
The Gap Is Expanding Other Partnerships
Gap will also partner with Walmart Inc. (NYSE: WMT) to roll out a home design brand. Gap Home will be available in Walmart's online store starting June 24. It will sell as an exclusive line of 400 items across home décor, tabletop, bedding, and bath products.
Additionally, the Gap has aggressive plans for its very successful Old Navy brand. It is already one of the largest apparel retailers in the United States, with over 1,200 locations in North America. The plan calls for Gap to open up to 2,000 stores with a focus on smaller-population cities and towns that do not have a location near.
Old Navy will move into markets like full-size clothing, loungewear, and personal products to help further grow sales over the next few years.
Partnerships with Yeezy, Walmart, and Old Navy could all be boons for Gap stock. But here's where the company struggles.
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One Gap Brand Is Struggling to Survive
While switching to online sales and expanding into other segments mostly benefited Gap in the last year, its upscale brand, Banana Republic, did not.
This could be harder to fix for Gap than the others. Management kept mostly quiet about Banana Republic during the introduction of the Power Plan last month.
This brand faces stiff competition in the slightly upscale preppy clothing segment of the market. It doesn't help that most of its stores are in mall locations that were struggling even before the pandemic hit last year.
The company will probably close around 35 of its Banana Republic locations over the next couple of years.
As counterweight to this, Gap plans to restore growth to its Athleta brand, the only activewear retailer exclusively for women. It wants to open more stores, and it has a very small brick-and-mortar presence right now. It plans to expand the brand internationally, starting in Laos.
Athleta sales have grown 56% over 2019 levels, and digital sales have jumped by 113%.
Now, knowing all of this, let's find out whether Gap stock is a buy at the current price.
Why You Should Wait to Buy Gap Stock
The Power Plan makes a solid plan if Gap executes it properly between now and 2023.
It has two exciting new product lines, Yeezy and Gap Home, rolling out this year.
It has blown away the analysts' earnings expectations for the past year.
Now, insiders have plenty of skin in the game as they own a combined 41% of Gap. Whatever they can do to get the stock price higher makes them enormous amounts of money.
If we wrap all this up, does it mean we should buy the stock?
Not really.
Shares of the Gap have turned away from the recent highs above $35. And the stock gets very little buying pressure from the strong earnings report and guidance increase that was announced in late May.
Another break above $35 might be a solid entry point for momentum investors.
For fundamental long-term-oriented investors, that 39 price/earnings ratio hangs a bit too high for a comfortable purchase of Gap stock right now.
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