Gap Downgraded as Old Navy and Athleta Weakness Persists
Gap has been downgraded to neutral as concerns about Old Navy and Athleta outweigh its low valuation and dividend yield. The company's Q2 revenue declined 2% year over year and missed expectations, with comparable sales weakening at both Old Navy and Athleta even as the core Gap brand performed well. The analyst recommends reducing exposure despite a 9.2x forward P/E and a 3% dividend yield, citing persistent brand and margin pressures.
The downgrade to neutral reflects concerns that Old Navy and Athleta are weakening even as the core Gap brand holds up. In Q2, revenue fell 2% year over year and came in below expectations, while comparable sales declined at both Old Navy and Athleta.
The analyst, Gary Alexander, recommends trimming exposure despite a 9.2x forward FY26 P/E and a 3% dividend yield. He notes ongoing challenges to brand strength and margins. The article also cites U.S. long-term yields above 5% and a potentially less supportive bull market. Disclosure: he holds a beneficial long position in GAP.
A downgrade and weak comparable sales at Old Navy and Athleta may influence investor sentiment toward Gap and other apparel retailers. Shoppers could see continued discounting or store changes, while employees and suppliers may face pressure if margin concerns lead to cost cuts. Because Gap is a large apparel company, its performance may also shape broader retail hiring and mall traffic, though effects may vary by region and brand.