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Jim Cramer - Mad MoneyGapGPSBUYOct 12, 2020

Part of the "lag trade" of brick-and-mortar mall retailers that sold off this summer, but are coming back with room to run. Their Athleta line competes with Lululemon. People are buying comfortable clothing, now that they work from home (as opposed to business wear). In August's report, Athleta sales were up 19% while Old Navy was up 24%. Brick and mortar took a hit in half, but digital sales which nearly doubled. Banana Republic was the weakest segment though. Store closures are good for the bottom line (bad for workers). The Gap is hiring (not firing) 50,000 seasonal people to shore up its holiday digital sales. Gap trades at a 18x PE, reasonable.

Jim Cramer - Mad Money

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$19.28

Stock price when the opinion was issued

$21.18

As of Jun 18, 2026. Market Open.

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COMMENT

It's turning around. Just reported. Only 1% growth in same-store sales in their largest division, Old Navy, but shares caught fire, even though other divisions should weakness.

BUY

Shares had fallen before last week's report. They beat far better same-store sales and an earnings beat which surprised the street. Shares soared over 30% last Friday, hammering short-sellers.

DON'T BUY

Walmart will crush everything when it reports tomorrow. Avoid the Gap. Avoid.

SELL

He sold 20 positions and now has his highest cash position (over 60%) since 2008. The reason is that he doesn't know what will happen with the economy and is bracing for a big decline if that happens. If so, he will buy back these shares at a lot lower price. He sold Gap, among others. He often gets Gap emails touting 60-70% off. He sold many retailers, because he expects them to slash prices to move inventory. Higher interest rates are another worry.

DON'T BUY

American Eagle is better (he owns it) at a 3% yield and good managers and it just bought a great company, and the stock is getting hammered. So, how can he recommend Gap, whose business is worse?

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Curated by Michael O'Reilly since 2020.
1550+ opinions with 4.81 rating (one of the best performing expert).

PAST TOP PICK

(A Top Pick Oct 14/21, Down 12%)Stockchase Research Editor: Michael O'Reilly Our PAST TOP PICK with GPS has triggered its stop at $20. To remain disciplined, we recommend covering the position at this time. This will result in a net investment loss of 19%, considering the previous buy recommendation. We will look for better opportunities.

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Curated by Michael O'Reilly since 2020.
1550+ opinions with 4.81 rating (one of the best performing expert).

TOP PICK

Stockchase Research Editor: Michael O'Reilly We reiterate GPS as a TOP PICK. The company continues to demonstrate itself as a leader in e-commerce as an apparel retailer. It trades at 12x earnings, compared to peers at 19x. It pays a decent dividend, backed by a payout ratio under 25% of cash flow and cash reserves continue to grow. We would buy this with a relatively tight stop at $20.00 -- looking to achieve $34.00 (upside potential over 45%). Yield 2.12% (Analysts’ price target is $34.25)

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Curated by Michael O'Reilly since 2020.
1550+ opinions with 4.81 rating (one of the best performing expert).

TOP PICK

Stockchase Research Editor: Michael O'Reilly GPS has emerged as a leader in e-commerce as an apparel retailer. Their online business accounted for 33% of total sales last quarter. Recently reported earnings of $0.70 per share easily exceeded analyst expectations of $0.46. Comparable same-store sales are up 12% from pre-pandemic levels. Management raised earnings guidance to $2.10-$2.25 per share for the full year, compared to analyst calls for $1.79. It trades at 14x earnings, compared to peers at 20x. It pays a reasonable dividend, backed by a payout ratio of under 25% of cash flow. We would buy this with a stop loss at $20, looking to achieve $36.50 -- upside potential over 35%. Yield 1.81% (Analysts’ price target is $36.58)

BUY

It reports next Thursday. They've done a great turnaround at the Gap and Old Navy stores, and customers are loyal. However, he doesn't like the current valuation after a big move.

BUY

It had a 30% move in the first half of this year and he expects better in the second. It trades at only 16x PE. He sees a good future here with their celebrities.

BUY

The U.S. reopening trade People will buy business casual again and this will be a huge driver in the apparel space. So, Gap or even Macy's fits the bill. However, to play the US reopening, buy energy stocks.

DON'T BUY

The problem with this company and all these clothing stores is that it is very difficult to compete. Space is expensive. The ones that do well are the ones that go online. They are fighting a very difficult secular trend that is happening in the industry.

DON'T BUY

He doesn't see the Gap different from other garment retailers; it's not special. He owns Lululemon instead, who have enjoyed strong growth. Go for growth. Gap is a laggard. TJX is interesting.

WAIT

This is a cheap retail stock. Has a pretty good franchise, but like a lot of brick-and-mortar retail, their numbers have stagnated. This is probably one of the longer-term survivors, but the general sector still seems to be under pressure.

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