Reports on Activism and Athleta Push Gap Inc. Stock Up

Gap Inc. shares spiked Wednesday on another round of rumors that the retailer could soon be confronting activist shareholders pushing for change, specifically selling off the Athleta division.

Gap shares closed Wednesday on the NYSE up 8.23 percent, or $1.10 to $14.46. Earlier in the day, shares jumped 10 percent.

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On April 1, Gap’s shares spiked on the same kind of speculation. At that time, Gap Inc. got hit by a Barclays downgrade, triggering rumors that the operator of Old Navy, Gap, Banana Republic and Athleta brands could decide to spin off a brand to raise shareholder value.

Barclays analyst Adrienne Yih cut her rating on Gap Inc. stock to “underweight” from “equal weight,” and wrote that “there could be activist interest to split the brands and monetize the value of Athleta, in particular, which could be a risk to our underweight rating.” Athleta, unlike the other Gap Inc. brands, has been a strong performer and steadily growing.

On Wednesday, Wells Fargo issued a report suggesting that Athleta could be worth in excess of Gap Inc.’s entire enterprise value. Wells Fargo also said an April 7 Activist Insight article discussing Gap and Athleta was being circulated.

Wells Fargo also noted that during Gap’s fourth-quarter conference call, chief executive officer Sonia Syngal said the team was “looking at options around value creation.”

Around three years ago, Gap Inc. was considering spinning off the Old Navy division into a separate company, but that never happened. Wells Fargo reported that the Old Navy plan was nixed because comp sale figures turned negative and that there would be complex and expensive separation charges and costs in the hundreds of millions.

“In our view, an Athleta separation would be more achievable as the brand is very healthy, was an acquired asset and its supply chain has less overlap with the knit-heavy Gap portfolio.”

Gap Inc. has been impacted by supply chain issues, higher freight costs and ongoing declines at the Gap and Banana Republic brands.

In the fourth quarter, the corporation incurred a loss of $16 million, or $0.04 a share. There were also charges related to winding down its European business, but excluding those, the fourth-quarter adjusted diluted loss per share was $0.02.

In the fourth quarter a year ago, Gap Inc. reported a profit of $234 million, or $0.62 a share.

Net sales for the latest quarter increased 2 percent to $4.53 billion, from $4.42 billion in the year-ago period, and declined 3 percent from the fourth quarter in 2019. Comparable sales last quarter rose 3 percent, and 3 percent compared to the 2019 quarter.

For all of 2021, Gap Inc. had a profit of $256 million, versus a loss of $665 million. Net sales reached $16.7 billion, a 21 percent gain over 2020, and a 2 percent gain compared to fiscal 2019. Comparable sales rose 6 percent year-over-year and 8 percent over 2019.

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