Please ensure Javascript is enabled for purposes of website accessibility

Will Gap Stock Get Crushed by a Recession?

By Jennifer Saibil – Aug 18, 2020 at 8:42AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The apparel retailer was getting back on its feet before COVID-19 knocked it down again. It's benefiting from a recovering economy, but can it withstand a recession?

Once one of the top U.S. retailers, Gap (GPS 1.74%) has been struggling over the past few years as styles have changed and malls have suffered from less traffic. While Gap has launched a successful digital program to combat slowing store sales, its business hadn't fully regrouped before the pandemic hit.

Sales plunged 43% during the first quarter and Gap seemed in danger of following clothing retailers such as Brooks Brothers, J.C. Penney, and Lord and Taylor in filing for bankruptcy. So where's the company now?

Gap sales associate in store.

Image source: Gap.

Surviving the market crash

Under the leadership of CEO Sonia Syngal, who arrived at the top job in February after Art Peck resigned in November, Gap was laying out a new strategic plan to leverage its strong brand names into a new era of higher sales. That all came crashing down when the pandemic hit, but Gap survived and stayed solvent through a series of cash-protecting initiatives such as selling debt, cutting costs, and focusing on e-commerce. While e-commerce was up 13% for the quarter, it reached a 100% year-over-year increase in May.

Gap's brands are still lucrative, and according to management, its online channel is the second largest apparel e-commerce site in North America, with annual revenue before the pandemic totaling $4 billion. If Gap finds its identity and the company manages to make its stores more relevant, or if it scraps enough of them and successfully expands it digital platforms, it might survive a recession. But if its actions don't coalesce around a compelling message to customers, Gap might find itself in a precarious position.

Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Gap Stock Quote
Gap
GPS
$14.60 (1.74%) $0.25
J.C. Penney Stock Quote
J.C. Penney
JCPN.Q

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
349%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.