GAP enters the post-earnings week in a sharply weaker position. The company cut its full-year sales outlook after a Q1 miss, the stock fell 15.4% on May 29 to $21.15, and virtually every analyst on the coverage list trimmed their price target on the same session. The most striking counterpoint: short sellers were already covering hard before the drop landed.
The earnings reaction dominated the week. GAP shed 12% the day results were released on May 28, and then another leg lower followed on May 29 as the guidance cut sank in fully. The one-month loss now runs to 13.5%. What makes the setup unusual is that short sellers appear to have anticipated trouble and acted early. Short interest dropped 17.6% over the week to 7.0% of the free float — down from roughly 8.5% a month ago and well off the 9% range seen in mid-April. The covering was fastest in the two sessions immediately after the earnings release, with shares short falling from 31.4 million on May 25 to 25.9 million by May 28. Shorts entered the print already de-risking, not building.
The borrow market reflects that de-escalation. Availability is broad and loose at 390% — meaning nearly four times as many shares are available to borrow as are currently shorted — and cost to borrow barely registers at 0.42% annualised, essentially free. There is no squeeze dynamic here. The ORTEX short score has eased to 57.6 from a recent peak of 61.5 on May 25, consistent with pressure coming off the short book rather than building. Options positioning is more cautious than outright bearish: the put/call ratio reached 1.49 on May 29, a little above its 20-day average of 1.41, though nowhere near the 52-week high of 1.87. The read there is hedging rather than conviction shorting.
The Street response was broad and immediate. JP Morgan's Matthew Boss downgraded GAP from Overweight to Neutral and cut his target from $35 to $27 — the most significant single move given the firm's weight in apparel coverage. Evercore also downgraded, slashing its target from $28 to $20 and moving to In-Line from Outperform. Goldman Sachs maintained Buy but cut to $28 from $32. Barclays and Wells Fargo both held constructive ratings while trimming targets to $26. B of A Securities held Neutral with a $26 target. UBS, notably, maintained Buy but with a $40 target — well above the pack and likely reflecting a longer-dated recovery view. After the flurry of cuts, the mean price target landed at $27.67, implying roughly 31% upside from current levels, though the wide dispersion from $20 to $40 reflects genuine disagreement about the recovery path. The bull case rests on brand rejuvenation, margin recovery, and e-commerce progress. The bear case — as ever — points to Old Navy's disproportionate weight in the mix and Athleta's continued underperformance against macro pressure.
The ownership structure adds one more layer of complexity. The Fisher family — founding shareholders William, Robert, and John — collectively hold around 46.7% of the company, giving them overwhelming influence over corporate direction. John Fisher trimmed 300,000 shares in early April at $25.40, a $7.6 million sale, though that followed a broader period in which net insider activity over 90 days was a net sell of roughly $20.5 million in value. The selling predates the guidance cut, but the direction of travel from insiders has been consistently outward. Among institutional holders, BlackRock added 938,000 shares as of April 30, and Columbia Management built a new position of 3.4 million shares — two names moving against the grain while the stock was still in the mid-to-upper $20s.
With no next earnings event currently confirmed, the focus shifts to any trading update or mid-quarter guidance revision. The gap between the most bullish analyst target and current price is wider than it has been in years; whether that reflects a genuine value opportunity or a forecast that needs further downgrades is the debate to watch.
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