UPDATE: Gap, Inc. (GPS) PT Lowered to $13 but Morgan Stanley Sees More Pain Ahead

Morgan Stanley analyst Kimberly Greenberger lowered the price target on Gap, Inc. (NYSE: GPS) to $13.00 (from $14.00) after the company cut 1Q22 revenue growth guidance from -MSD to -HSD y/y to negative lowto-
mid-teens y/y. Management attributed the cut to macro-economic dynamics & ongoing execution challenges at Old Navy ("ON"), which have already yielded three sequential quarters of 2Y stack revenue growth deceleration at the segment. Additionally, GPS announced ON President & CEO Nancy Green will step down this week after assuming the role in November 2020.

The analyst reiterated an Equalweight rating, stating "As discussed in our prior notes, GPS' initial 2022 EPS guidance appeared overly optimistic. And while management did not lower the FY 2022 EPS outlook today, it is unclear how GPS can get the business back on track to deliver the $1.85-2.05 initial guidance range, as: 1) historical precedent suggests topline challenges at ON typically require 4+ quarters to resolve, & 2) management changes & protracted lead times at ON could further elongate the recovery this time around. In fact, management indicated it will have to pursue increased promotional levels to re-balance the ON assortment, which likely pressures GM into 2Q22, if not longer.".

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