Jefferies and Barclays downgrade Gap to 'hold' as 'Barbie magic' not panning out

Two Wall Street houses have turned neutral on Gap in the last few days. Consumers are losing interest in its Old Navy brand, which has been resorting to increasingly aggressive discounting to win them back, according to the analysts. Three years ago, Gap named former Mattel executive Richard Dickson, known for bringing Barbie to the big screen, as CEO. He was expected to bring some of the “Barbie magic” to Gap.

Jefferies and Barclays have downgraded Gap, the owner of its namesake flagship brand, as well as Old Navy, Banana Republic, and Athleta. They had previously had "buy" calls on the stock; they now advise “hold.” 

The houses also revised their target prices for Gap. Jefferies lowered its TP to $23 per share, implying 13.6% upside from Wednesday’s closing price. Barclays’ new TP is $20 per share and implies no upside.

“We are increasingly concerned about softer trends at Old Navy,” Jefferies wrote, adding that the data pointed to increased promotional activity, as Proactive reported. In the first quarter of its fiscal 2026, ended May 2, comparable sales at the brand rose just 1%. Only Athleta performed worse, with comparable sales down 11%. Gap will report its second-quarter results on August 27.

Morning Consult survey data showed that purchase consideration for Old Navy fell 13% year over year in July and has continued to decline, while perceptions of the brand’s value have also deteriorated, Jefferies noted.

Barclays made similar arguments. “Old Navy promotions remain elevated, Banana Republic has inflected to Deeper, and Athleta remains a drag without a clear line of sight towards improvement,” the analysts said in a note cited by CNBC. Barclays acknowledged the positive momentum at the Gap brand but said it would not be enough to support the company’s stock.

Interestingly, both houses rated Gap a "buy" at virtually the same time, following strong quarterly results released in November.

In recent years, Gap has faced declining revenue and comparable sales. The company cut jobs, closed stores, and tried to accelerate the development of new products as it lost ground to global chains such as Zara and online retailers including Shein, the Wall Street Journal reported back in July 2023.

To turn the business around, the retailer appointed Richard Dickson, a former executive at Mattel – the company behind Barbie, Hot Wheels, and Fisher-Price – as CEO in August 2023. When Gap announced the appointment, the “Barbie” movie, on which Dickson served as an executive producer, was packing theaters. In its press release, Gap called him one of the lead architects of Mattel’s global transformation, which revitalized its brands and returned the company to growth. This led many to speculate that he would try to recreate the Barbie magic at Gap, the New York Times wrote in May.

Gap stock is down around 21% year to date.

Wall Street is divided on the stock: it has 11 “buy” calls versus an equal number of “hold” ratings. A month ago, it had 14 "buys." The average target price is $26 per share, implying 28% upside from the last closing price.