JPMorgan upgraded Gap, Inc. (NYSE:GPS) to Neutral, added American Eagle Outfitters (NYSE:AEO) to its positive catalyst watch list, and removed Savers Value Village (SVV) from its analyst focus list in a wide-ranging note covering department stores and specialty softlines on Monday.
Overall, for its department stores and specialty softlines universe, JPMorgan models above consensus fourth quarter top/bottom-line growth for ~90% of companies.
The firm said that for Gap, its recent fieldwork points to Old Navy/Gap stability, with inventory right sized as of 4Q22. In addition, they note the second-half Athleta opportunity under new leadership from Alo Yoga and the more than 200bps of tangible structural self-help margin recapture.
Neutral-rated AEO was placed on positive catalyst watch by the bank, with its recent work citing a near-term assortment opportunity year-on-year. JPMorgan also pointed to dual-category tailwinds across AE (Denim) and Aerie (Intimates/Lounge/Active) by Google Trends data.
JPMorgan believes AEO management will layout "+300bps of multi-year margin opportunity (=LDD% EBIT margin target by our work) on the March 7th 4Q call given management re-prioritization of bottom-line flow-through (GPM expansion + SG&A leverage into FY24)."