03:25 PM EDT, 05/21/2025 (MT Newswires) -- Gap (GAP) is expected to deliver a fiscal first-quarter beat and reiterate its outlook amid "solid" sales trends, UBS Securities said in a note e-mailed Wednesday.

The apparel retailer is scheduled to report its latest quarterly results May 29. UBS projects adjusted earnings at $0.48 a share on net sales of $3.45 billion, higher than Wall Street's views for $0.44 and $3.42 billion, respectively, according to the brokerage. In March, Gap guided fiscal 2025 net sales to grow 1% to 2%.

UBS' checks indicate that the company's first-quarter and second-quarter to-date sales trends were "solid," analysts Jay Sole and Mauricio Serna said. "Our analysis of industry-observed sales, observed customers, and estimated visits data indicates Gap's (first-quarter) sales growth rate should slightly beat the sell-side consensus estimate."

The brokerage raised its price target on the Gap stock to $29 from $19, while maintaining its neutral rating.

UBS Evidence data showed that the Banana Republic and Gap brands gained "noticeable" momentum on social media last month, the analysts said. However, web traffic data suggest traffic for the first quarter dropped year over year across each of the company's four main brands and is "generally on a decelerating trend," according to the note.

US President Donald Trump announced sweeping new import tariffs in early April, but later declared a 90-day pause on certain duties for non-retaliating countries. The US and China recently agreed to suspend most duties on each other's goods for a period of 90 days.

UBS now expects tariffs to drive a roughly 12% increase in Gap's cost of goods sold, if it company took no mitigation measures. Prior to the US-China truce, the brokerage projected Gap's COGS to increase 38% pre-mitigation efforts.

Taking mitigation efforts like negotiating favorable pricing with suppliers and passing on some costs to customers, UBS expects current US tariffs to have a nearly 120-basis-point headwind on the company's gross margins from the 2025 third quarter to the 2026 second quarter, according to the note.

"We assume that Gap has enough inventory to get through (the first half of 2025) and that margins would gradually recover by (2027)," the analysts said. The brokerage raised its EPS and sales estimates for the company from 2025 through 2027.

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