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Gap (GPS) Inks Deal to Sell Intermix as Part of Power Plan 2023

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Gap, Inc. GPS has agreed to sell its fashion boutique, Intermix, to private equity firm, Altamont Capital Partners. Per the deal, Altamont is likely to gain access to 31 Intermix stores across the United States, its online business and assets. Financial terms of the deal remain undisclosed. This move is in sync with Gap’s Power Plan 2023 strategy, which aims at fleet optimization efforts and closing of underperforming stores in a bid to focus on core brands, including Old Navy, Gap, Banana Republic and Athleta. Keeping in these lines, the company divested premium children’s apparel and accessories brand, Janie and Jack, to Go Global Retail in April.

As part of its streamlining efforts, management is likely to close 350 Gap and Banana Republic stores by 2023 across North America. With the closing of the underperforming Gap and Banana Republic stores, the company expects to realize $100 million in EBITDA savings on an annualized basis by the end of 2023. Out of this, the company plans to close about 100 Gap and Banana Republic stores globally, net of openings, in fiscal 2021, in line with its Power Plan 2023 strategy.

Till 2023, the loss in sales due to these aforementioned store closures is likely to be offset by online sales. The company’s consolidated sales as well as its Gap, Old Navy and Athleta brands have been reflecting gains from continued growth in the e-commerce business. As a result, it remains focused on its mobile shopping facility, which accounts for 75% of online sales. Further, it envisions the e-commerce business to contribute 50% of sales by the end of 2023 on the back of higher investments in digital, technology and distribution capacity.

Moreover, the company remains poised to gain from its Old Navy brand, which has been witnessing a significant acceleration in the digital business since the start of the pandemic, on the back of robust customer demand. Strength in casual and cozy categories along with Active, Fleece and Sleep bodes well. Also, its smaller brands, namely Athleta, have been performing well on the back of its value-driven active and lifestyle categories, increased digital marketing investments and focus on product strategy. The brand is benefiting from new products, particularly sleepwear, rising customer engagement and long-term growth strategy. Driven by such upsides, Athleta reached more than $1 billion in sales during fiscal 2020 and is likely to reach $2 billion by 2023.

All said, we hope that such well-chalked plans are likely to aid Gap’s growth story. In the past three months, this Zacks Rank #3 (Hold) stock has surged 59.4%, outperforming the industry’s growth of 11%. Topping it, a VGM Score of A and a long-term earnings growth rate of 12% raise optimism in the stock.

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G-III Apparel Group GIII currently has an impressive long-term earnings growth rate of 11.6% and a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Abercrombie & Fitch Company ANF has a Zacks Rank #1 and a long-term earnings growth rate of 18%.

Gildan Activewear GIL has a long-term earnings growth rate of 9%. The company flaunts a Zacks Rank #2 (Buy).

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