Gap, Inc. GPS has been gaining from strength at Old Navy and Athleta brands, solid online show, and Power Plan 2023. Improved marketing efforts, better brand management and advanced technology bode well. The company is also witnessing improvement from the pre-pandemic levels.

Shares of the company have gained 19.4% year to date compared with the industry’s 4.3% growth and against the Retail-Wholesale sector’s decline of 3.8%. Its earnings estimates for fiscal 2021 have moved up 1.4% over the past seven days.

The positive trend and a VGM Score of A signify bullish analyst sentiments and justify the company’s Zacks Rank #1 (Strong Buy), indicating robust fundamentals and the expectation of continued momentum in the near term.

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That said, let’s delve deeper into the factors that are driving the stock.

Brand Strength

Gap’s powerhouse brand Old Navy has been serving as a major growth driver for a long time. In second-quarter fiscal 2021, net sales improved 21% for the Old Navy, with comps increasing 18% from the 2019 comparable period. Sales gained from customer acquisition, stemming from strong demand for the loyalty launch and the introduction of inclusive sizing via the BODEQUALITY launch. The brand remains well-poised for growth in the current back-to-school season.

Another small but notable brand, Athleta rose 35%, with comps growth of 27% on a two-year basis. Strength in performance lifestyle products, strong customer loyalty and inclusive sizing strategy aided the brand’s performance.

In the latest development, the Athleta label extended its wholesale partnership with REI Co-op to offer a curated selection of lifestyle apparel and accessories to 135 REI doors nationwide as well as online. Increased brand awareness and the launch of its digital platform AthletaWell also bode well.

Solid Online Show

The company has been gaining significantly from consumers’ persistent shift to the digital platform since the onset of the pandemic. Owing to this, digital sales surged 65% from the second quarter of fiscal 2019, accounting for 33% of total sales in second-quarter fiscal 2021. Continued growth in the e-commerce business contributed to consolidated sales as well as gains in its Gap, Old Navy and Athleta brands. Its online business is also benefiting from the company’s dominant omni-channel strength and scaled operations.

Management remains keen on optimizing its mobile experience as a key priority in 2021. It launched its native Android app in March, which is gaining traction. The company also acquired an e-commerce startup and online application, Drapr, for customers to get better clothing size and fit via advanced 3D technology and virtual try-on service.

Strong Projections

Management raised its view for fiscal 2021. It envisions adjusted earnings of $2.10-$2.25 per share compared with $1.60-$1.75 mentioned earlier. GAAP earnings per share are expected to be $1.90-$2.05, up from the earlier mentioned $1.55-$1.70. The company expects year-over-year sales growth of 30% as compared with the low-to-mid 20-percent range stated earlier.

Power Plan 2023

Gap also has been progressing well with its Power Plan 2023 strategy, which focuses on opening highly profitable Old Navy and Athleta stores, while closing the underperforming Gap and Banana Republic stores. As part of the plan, the company expects the Old Navy and Athleta brands to contribute 70% to sales by 2023.

In sync with its fleet-optimization efforts under the plan, the company aims to close 100 Gap and Banana Republic stores globally, net of openings, in fiscal 2021, in line with its Power Plan 2023. With the closing of 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. It expects the e-commerce business to contribute 50% of sales by the end of 2023.

More Top-Ranked Stocks in the Retail Space

Abercrombie & Fitch ANF presently sports a Zacks Rank #1. It has an expected long-term earnings growth rate of 18%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Children’s Place PLCE has a long-term expected earnings growth rate of 8% and it currently flaunts a Zacks Rank #1.

Foot Locker FL, a Zacks Rank #1 stock at present, has an expected long-term earnings growth rate of 4%.

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