QS Research · Michael Burry's Scion Capital analyst template · 2006
GAP INC (GAP)
As of 2026-11-09 · 13/15 boxes filled from SEC filings and market data
Conclusion: WATCH
Conviction medium · base case -26% · downside -33% · upside -17%
Section 13's TTM EBIT, EBITDA and net income are not clean operating earnings because they include the Q2 FY2026 $417M net IEEPA tariff recovery and the Q1 FY2026 $263M net legal gain, so I use adjusted TTM EBITDA of about $1.52B for all three cases. At Gap's own 3.0x EV/EBITDA, that gives about $15.8 per share, 26.4% below the $21.48 close, while the market is implicitly paying about 4.3x adjusted EBITDA and capitalizing the one-offs. The problems are visible in Q2 FY2026 net sales -2%, Old Navy -4% comps, Athleta -12% and the trimmed FY2026 sales guide, but with net cash, a 12.7% reported FCF yield and around 8.9x forward adjusted EPS the stock is not cheap enough to short. I am on watch: the base case is negative enough to avoid a long, but not below the -30% short threshold, and the key test is whether Old Navy and Athleta stabilize before the one-off benefits roll off.
Key numbers
- Share price: $21.48
- Market cap: $7.55B
- Latest financial period: TTM to Aug 1, 2026
- Revenue (TTM): $15.33B
- EV / EBITDA (TTM): 3.0x
- P/E (TTM): 6.1x
- Price / book: 1.91x
The 15 boxes
- ✓ 1. Long-form business notes
Gap Inc. is an omni-channel apparel retailer whose latest 10-K describes four brands—Old Navy, Gap, Banana Republic and Athleta—sold through Company-operated and franchise stores, websites, third-party arrangements and licensing. FY2025 (fiscal year ended 2026-01-31) revenue was $15.37B, gross profit $6.27B, operating income $1.11B, net income $816.0M and operating cash flow $1.29B, versus FY2020 revenue $13.80B, operating loss $862.0M, net loss $665.0M and operating cash flow $237.0M. The store base shifted from 3,100 Company-operated and 615 franchise locations in FY2020 to 2,474 Company-operated and approximately 1,000 franchise locations in FY2025, and the oldest 10-K still included Intermix and Janie and Jack while the latest describes the four core brands.
- ✓ 2. Competitive advantage
The filings describe a highly competitive global apparel retail industry with low barriers to entry, and Gap's own numbers show no stable moat: operating income swung from -$862.0M in FY2021 to -$69.0M in FY2023 and back to $1.11B in both FY2025 and FY2026, with net losses in two of the last six fiscal years. Gross profit dollars improved ($4.71B FY2021 to $6.27B FY2026) on revenue of $15.37B, but operating income was flat year over year in FY2026 despite higher revenue, so the evidence points to a well-recognised brand and decent cash generation rather than a durable cost, network, or switching-cost advantage. Competition is named broadly (department stores, mass-market, specialty and discount chains, independent stores, digital businesses), and the main structural exposures cited are imported-cost/tariff risk and a labour-heavy store base.
- ✓ 3. 10-Q takeaways
Q2 FY2026 (quarter ended 2026-08-01) net sales fell 2% to $3.7 billion with comps down 1%, split sharply by brand: Gap +10%, Banana Republic +3%, Old Navy -4%, Athleta -12%. The reported 52.8% gross margin, $676 million operating income and $1.38 EPS all carry a $417 million net IEEPA tariff recovery, so adjusted gross margin was 41.4% (+20 bps), adjusted operating margin 7.1% ($259 million) and adjusted EPS $0.52. Inventory was flat at $2.3 billion, cash plus short-term investments $2.5 billion, year-to-date free cash flow $261 million, and $262 million was returned to shareholders in the quarter. Full-year adjusted EPS guidance was raised to $2.35-$2.45 while the net sales outlook was trimmed to up 1%-1.5%.
- ✓ 4. Corporate governance
Filled; members read this box.
- ✓ 5. Overview of the prior 3 years of 8-K filings
Filled; members read this box.
- ✓ 6. Other significant filings
Filled; members read this box.
- ✓ 7. Chronology of significant news and events
Filled; members read this box.
- ✓ 8. Comparables valuation interpretation
Filled; members read this box.
- ✓ 9. Insider trading interpretation
Filled; members read this box.
- ○ 10. Earnings-call notes
- ✓ 11. Impression of the shareholder letter
Filled; members read this box.
- ○ 12. Scuttlebutt overview
- ✓ 13. Valuation and risk/reward summary
Filled; members read this box.
- ✓ 14. Current price suppression and potential catalysts
Filled; members read this box.
- ✓ 15. Conclusions
The call above.
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