Fast-forward to 2025, and something surprising is happening: The company is quietly becoming a cash flow machine again.

When I see an old-school retailer generating real profits in a brutally competitive market, my ears perk up. That kind of turnaround – if it sticks – can make patient investors a lot of money.

Gap is the largest specialty apparel company in the U.S., owning Old Navy, Gap, Banana Republic, and Athleta. After years of uneven execution for the company, new leadership has spent two years tightening costs, refreshing brand identities, and modernizing supply chains.

The second quarter of fiscal 2025 showed that the plan is starting to click. Net sales held steady at $3.7 billion, with comparable sales up 1% year over year – the company’s sixth straight quarter of positive comps. Earnings per share rose 6% to $0.57, and operating margin came in at 7.8%.

Cash and equivalents hit $2.4 billion – the highest level in 15 years – and the company returned $144 million to shareholders through dividends and buybacks.

The Old Navy and Gap brands both posted gains, while Banana Republic showed early traction in its premium repositioning. Athleta remains a sore spot but has a new CEO from Nike to lead its reset.

Gross margin was 41.2%, down from 42.6% last year due to the lapping of last year’s credit-card benefit and tariff costs. Online sales rose 3% and now make up 34% of total revenue. Inventory climbed 9%, mostly from accelerated receipts ahead of new tariffs.

Management reaffirmed full-year guidance of 1% to 2% sales growth and an operating margin of 6.7% to 7%.

For a mature retailer fighting tariffs and fickle consumers, those are respectable numbers.

Let’s run Gap through The Value Meter and see what’s really happening beneath the surface.

Gap’s enterprise value compared with its net asset value sits at about 3.4, a touch cheaper than the market’s 3.8 average. That means investors are paying less for each dollar of assets than they would for a typical peer.

At the same time, the company is converting those assets into cash with unusual efficiency. Quarterly free cash flow now equals nearly 7% of Gap’s net asset value – six times higher than the broader market average.

What makes this more convincing is the consistency. Nearly half of the past dozen quarters showed growth in free cash flow, roughly matching the average company in our universe. That may sound ordinary, but in retail, ordinary stability can be a rare advantage.

Since surging 70% in a month at the end of 2023, the stock has seen some big swings, bouncing back and forth between $17 and $29. It currently sits right around the midpoint of that range.

Gap isn’t suddenly a growth rocket, and tariffs or shifting fashion trends could easily knock it off balance for a while. But right now, the company is quietly producing real cash, paying its bills, rewarding shareholders, and trading for less than it probably should.

That’s a setup long-term investors don’t see often in this sector.

The Value Meter rates Gap as “Slightly Undervalued.”

What stock would you like me to run through The Value Meter next? Post the ticker symbol(s) in the comments section below.

The post Gap: A Comeback Story That’s Starting to Cash In appeared first on Wealthy Retirement.

The department store giant, which operates Macy’s, Bloomingdale’s, and Bluemercury stores nationwide, has seen its stock price bounce between $10 and $20 over the past year as it’s worked to reinvent itself for the modern shopper.

Let’s dig into the numbers to see whether (with apologies to Bob Barker) the price is right.

At first glance, Macy’s might look cheap – much like the clothing rack in its stores’ “Last Act” clearance section. Its enterprise value-to-net asset value (EV/NAV) ratio is 2.27, well below the average of 6.35 for companies with positive net assets. Put another way, you could theoretically buy all of Macy’s assets at a significant discount to what similar companies are worth.

However, there’s a reason for the steep discount: The company has posted negative free cash flow in three of the past four quarters.

When it does generate cash, though, it performs better than you might expect. Over the past four quarters, its quarterly free cash flow has averaged 4.01% of its net assets, compared with -9.05% for companies with similar cash flow patterns.

The numbers from Macy’s most recent quarter help add context to these figures. While sales dropped 3.8% to $4.9 billion, the company managed to expand its gross margin to 40.5%, up from 38.1% last year. That tells us that even though it’s selling less overall, it’s making more money on what it sells.

What’s driving this improvement? The company’s “Bold New Chapter” strategy seems to be gaining traction. Its “First 50” locations – test stores with enhanced staffing and merchandising – posted their second straight positive quarter, with comparable sales rising 1%. This success led management to expand some of these initiatives to 100 more stores.

Meanwhile, Macy’s luxury segments are holding steady, with Bloomingdale’s sales down just 0.2% year over year and Bluemercury’s actually growing 1.7%.

The company is also smartly monetizing underperforming locations, as it expects to close about 55 stores this year. This isn’t just cost-cutting – it’s value creation. These locations may be weak performers as stores, but they’re valuable real estate assets. Management noted strong demand from developers for these properties, and they’re only executing deals that would build shareholder value. In fact, asset sales totaled $36 million in Q2 alone.

Lastly, though Macy’s carries $3 billion in long-term debt on its balance sheet, it has maintained a healthy cash position of $646 million.

So what’s the bottom line?

While Macy’s low EV/NAV ratio might make it look like a bargain, the company’s mixed cash flow performance and ongoing transformation suggest that its current valuation is appropriate.

It’s making the right moves with its store strategy and maintaining solid margins, but it’s also still navigating a challenging retail environment.

The stock isn’t cheap enough to be a clear bargain, but it’s not expensive either – especially given the company’s still-solid market position and the progress it’s making on its turnaround strategy.

Sometimes the market gets it right, and this appears to be one of those times.

For now, The Value Meter rates Macy’s as “Appropriately Valued.”

What stock would you like me to run through The Value Meter next? Post the ticker symbol(s) in the comments section below.

The post Macy’s Is Making Progress… Is It Back in “Buy” Territory? appeared first on Wealthy Retirement.

When it comes to the economy, many Americans are feeling as uneasy as they do when the conversation shifts to politics during Thanksgiving dinner.

But as Chief Income Strategist Marc Lichtenfeld points out, several economic indicators remain strong, including consumer spending, which could contribute to a robust Black Friday and holiday shopping season.

With that in mind, what are the best ways investors can capitalize on seasonal trends during the holidays? Find out in this week’s episode of State of the Market.

The post Your Black Friday Investing Guide appeared first on Wealthy Retirement.

The stockings are hung, the lights are lit, the tree is donned with tinsel… Heck, the 5-foot snowman is even inflated in the front yard.

But it all comes at a price…

This year, the average American over the age of 18 plans to spend $61 on holiday decorations. That’s $20 more than they planned to spend a decade ago.

Since 2004, the average expenditure on holiday decorations has increased more than 69%.

Year over year, spending to create a Rockwell Christmas has increased by more than 5%.

And it’s all part of a larger trend…

According to the National Retail Federation’s annual consumer spending survey, Americans plan to rack up a $1,047 bill on average this holiday season – up 4% from last year.

And a Credit Karma survey suggests that 27% of them will go into debt in the process. In fact, 43% feel that going into debt around the holidays is inevitable.

And we’re not looking at just a little debt…

Forty-two percent of shoppers plan to rack up more than $500 in debt.

And 22% of those who went into debt to finance the holidays in 2018 are still paying off that debt.

While we fully support being generous around the holidays, please don’t go into debt to do so.

According to the Federal Reserve, the average interest payment on a credit card is 17.14%. If that $500 is the only balance you’re carrying – and you’re making a $10 monthly minimum payment – you’ll pay a staggering $326 in interest to pay it off.

That means you’ll be paying 65.2% more later for the gifts you’re buying on credit now.

There are things other than money that you can be generous with – specifically your time.

Homemade gifts are often less expensive – yet, because of the time investment, they have a higher perceived value. For example, you could knit a pair of socks (cost: $10) or make a frozen meal that can be made in the Crock-Pot (cost: $15).

Or you can simply offer your time…

If you have the luxury of living close to your loved ones, plan an evening to watch your favorite holiday movie.

If they live far away, write them a letter or give them a call.

Regardless of how you plan to spread cheer this year, it’s not worth going into debt.

And I guarantee, in the long run, a homemade gift or handwritten letter will be worth far more than a blow-up yard decoration.

Happy holidays,

Rachel

P.S. What’s something unique that you’re doing for your loved ones this holiday season? Please share in the comments below.

The post The Cost of Decking the Halls appeared first on Wealthy Retirement.