TLDR
- Gap reports earnings Thursday after hours, with analysts expecting EPS of $0.48-$0.49 on revenue of $3.7 billion.
- The stock is down double digits since late-May after weak Old Navy and Athleta results, but jumped 6% to $21.36 on Tuesday.
- Options traders are leaning bullish, with calls outpacing puts (20,328 vs 13,242) and heavy activity at $23-$24 strike prices.
- Goldman Sachs maintains a Buy rating with a price target of $25, while the analyst consensus mean target is $25.58.
- Analyst sentiment is split down the middle, with half bullish and half rating the stock a Hold.
Gap has had a rough few months. The stock fell sharply after its Q1 results in late May, when management flagged slowing sales at Old Navy and weakness at Athleta. Women’s dresses specifically were called out as a miss on merchandise.
The stock is down double digits from those May highs. But heading into Thursday’s report, something shifted. Gap jumped 6.02% to $21.36 on Tuesday, putting the stock near the midpoint of its 52-week range of $18.11 to $29.36.
Analysts are looking for earnings of $0.48 to $0.49 per share on revenue of $3.7 billion when results hit after the close Thursday.
The bar coming into this quarter is lower than it was in May. That’s either an opportunity or a trap, depending on how the numbers come in.
Options Market Leans Bullish
Options traders are clearly paying attention. Volume hit 33,570 contracts by early afternoon Tuesday, well above normal levels. Calls outpaced puts by a wide margin, with 20,328 calls traded versus 13,242 puts.
The heaviest action was clustered at August 28 calls at the $23, $23.50, and $24 strikes, with around 1,500 contracts each. On the downside, $17 and $18 puts also saw active trading.
Open interest tells a similar story. The largest single position sits at the September 18 $24 call with 7,448 contracts, followed by the September 4 $21 put at 6,437 contracts.
Gap’s implied volatility for the next three months came in at 49.57%, roughly in line with its realized 90-day volatility of 48.8%. That means traders are expecting a move, but not a panic-level swing.
The options market is pricing a potential move above $24 or below $18 as the key triggers for further momentum after the report.
What the Analysts Say
Goldman Sachs reiterated its Buy rating on August 20, though it trimmed its price target to $25. The broader analyst consensus target sits at $25.58 based on 18 analysts tracked by Investing.com.
InvestingPro’s fair value estimate puts Gap at $24.62, implying about 15% upside from current levels.
Still, the analyst community is not fully convinced. Of those tracked by FactSet, exactly half are bullish on the stock, while the other half have it at Hold or the equivalent. That’s a coin flip going into the print.
On the positive side, discretionary spending has held up better than expected despite higher gas prices. Gap’s delivery partnership with DoorDash could give back-to-school sales a lift.
On the negative side, both Target and TJX reported relatively soft apparel numbers recently, which doesn’t set up a great backdrop for Gap.
Gap’s current stock price sits at $21.38, with the stock up 4.96% on the session.
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