The Gap Inc. GAP and Abercrombie & Fitch Company ANF are both familiar names in the Retail – Apparel and Shoes space, competing head-to-head to grab a larger share of this lucrative market. While GAP, known for its classic and casual styles, caters to a broad audience, ANF has successfully reinvented itself with a focus on trendy, premium offerings.
As consumer preferences evolve and digital transformation reshapes the retail landscape, both brands face unique challenges and opportunities. This face-off explores their strategies, financial performance and market positioning to determine which brand is better poised for long-term success.
The Case for GAP
Gap, a powerhouse in the apparel industry, has maintained a strong market presence through its diverse brand portfolio, including Old Navy, Banana Republic and Athleta. While it continues to hold a notable share in the U.S. apparel market, the rise of fast-fashion competitors and direct-to-consumer brands has challenged its dominance. Despite these shifts, GAP remains a formidable player, leveraging its brand heritage, expansive store network and global footprint to stay competitive in an evolving retail landscape.
Recently, GAP has executed a strategic turnaround, marked by a solid financial performance and targeted initiatives to revitalize its brand portfolio. The company has prioritized supply-chain efficiency, cost-cutting measures, and digital transformation to enhance operations and customer engagement. Investments in product innovation, sustainability and high-profile collaborations have helped attract younger consumers and reinforce brand relevance. Additionally, GAP has expanded its international footprint and accelerated e-commerce growth, positioning itself for long-term success.
The company projects 1-2% sales growth for fiscal 2025, reflecting confidence in its strategic direction despite potential headwinds like tariffs and inflation. Strength at Old Navy and Gap brands are expected to drive this growth, with Banana Republic stabilizing and Athleta undergoing a gradual recovery. To support these efforts, GAP is expected to generate approximately $150 million in cost savings, some of which will be reinvested in growth while the remainder will be used to offset inflationary pressures.
However, macroeconomic uncertainties, including inflation and other external headwinds, could pose challenges. Management anticipates a dynamic operating environment in fiscal 2025. Regarding tariffs, the company reported that less than 10% of its products were sourced from China in fiscal 2024, with Canada and Mexico accounting for less than 1% combined. While potential tariff implications remain a factor for the fiscal 2025 outlook, GAP expects only a minor impact on its margins, reflecting proactive supply-chain adjustments.
The Case for ANF
Abercrombie has staged an impressive resurgence in the competitive apparel market, reclaiming its status as a credible and growing player. Once defined by its exclusive, mall-based identity, the company has repositioned itself with a more inclusive and fashion-forward approach. This transformation has resonated well with consumers, particularly millennials and Gen Z, driving strong sales growth.
In fiscal 2024, ANF reported a robust 16% year-over-year increase in net sales to $4.95 billion, with comparable sales jumping 17% across brands and regions. Both Abercrombie and Hollister contributed to this growth, benefiting from the company’s agility in responding to shifting fashion trends and evolving consumer preferences. ANF’s ability to engage customers through personalized shopping experiences and digital innovations has been central to its ongoing success.
To sustain its momentum, Abercrombie focuses on strategic investments in digital transformation, omnichannel expansion and product diversification. The company’s Read & React inventory model enables precise demand forecasting, reducing markdowns and maximizing profitability. Additionally, its direct-to-consumer strategy, bolstered by e-commerce enhancements, loyalty programs, and a growing activewear and gender-inclusive portfolio, has strengthened its market presence. These initiatives, combined with global expansion efforts, position ANF as a formidable competitor in the retail apparel space.
In fiscal 2024, ANF exceeded its 2025 financial targets under the Always Forward Plan, reflecting effective execution and operational discipline. For fiscal 2025, ANF projects 3-5% sales growth and an operating margin of 14-15%, demonstrating confidence in its strategic initiatives. Key financial drivers include cost efficiencies, improved supply-chain management and lower freight expenses anticipated in the latter half of the year.
Despite its strong performance, Abercrombie faces rising operational costs, led by inflation, increased wages, marketing expenses and technology investments. Management anticipates a challenging first half of fiscal 2025 due to elevated freight costs and a more normalized approach to carryover inventory sales.
The company’s first-quarter fiscal 2025 EPS guidance of $1.25-$1.45 falls below the prior year’s $2.14, indicating the impacts of these near-term pressures. ANF’s outlook accounts for $5 million in tariff-related impacts from U.S. trade policies on China, Canada and Mexico. However, with a disciplined financial strategy and continued brand evolution, Abercrombie remains well-positioned to navigate these challenges and drive sustained long-term growth.
How Do Zacks Consensus Estimate Compare for GAP & ANF?
The Zacks Consensus Estimate for Gap’s fiscal 2025 sales and EPS implies year-over-year growth of 1.6% and 7.7%, respectively. The EPS estimates have moved up 10.7% in the past 30 days.
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The Zacks Consensus Estimate for Abercrombie’s fiscal 2025 sales and EPS suggests year-over-year growth of 4.6% and 3.5%, respectively. EPS estimates have moved down 0.8% in the past 30 days.
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Price Performance & Valuation of GAP & ANF
Year to date, Gap shares have declined 5.2%, whereas Abercrombie stock has lost 44.2%.
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Gap is trading at a forward price-to-sales multiple of 0.55X, above its median of 0.33X in the last three years. Abercrombie’s forward P/S multiple sits at 0.81X, above its median of 0.68X in the last three years.
The GAP stock looks cheap from a valuation perspective. Moreover, investments in product innovation, sustainability, high-profile collaborations, a strong outlook and solid estimate revisions highlight its growth prospects.
Abercrombie does seem pricey. However, its valuations reflect its focus on investments in digital transformation, omnichannel expansion and product diversification, positioning it for long-term growth. If the company sustains its execution, the premium could be warranted.
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Conclusion
While both companies are well-positioned to capitalize on shifting consumer trends, Gap’s growth trajectory appears more compelling. The company is expanding at a faster pace, supported by a strong sales momentum, improving profitability and a well-diversified brand portfolio that includes Old Navy, Banana Republic and Athleta. Gap’s strategic initiatives demonstrate its ability to adapt to evolving market dynamics while reinforcing its position as a dominant apparel retailer. Its minimal reliance on imports from China, Canada and Mexico provides a key advantage in navigating tariff-related challenges.
Meanwhile, Abercrombie has made remarkable progress with its fashion-forward rebranding, digital investments and omnichannel expansion. However, the company faces headwinds, including rising operational costs and an estimated $5 million in tariff-related impacts, which could pressure margins and profitability. While ANF’s strategic initiatives hold promise, these external challenges present potential hurdles to sustained growth.
Gap’s discounted valuation, strong sales, profitability and adaptability give it an edge over Abercrombie. With lower tariff risks, solid fundamentals and a discounted valuation, it stands out as the better buy.
Gap currently sports a Zacks Rank #1 (Strong Buy), whereas ANF has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
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