Gap (GAP) is seen having a balanced upside/downside skew around its upcoming fiscal Q2 earnings, UBS said in a note emailed Wednesday.

The company is set to report fiscal Q2 financial results on Aug. 27.

UBS analysts expect Old Navy's fiscal Q2 comparable store sales to have a larger decline than the consensus estimate of a 2% decrease, due to its recovery from a Q1 seasonal category underperformance still ongoing and World Cup inventory selling worse than expected. This factor is the main downside risk, as it could raise investor concerns on the recovery pace of sales for H2, according to the note.

On the other hand, the analysts see potential upside to fiscal 2026 gross margins if tariff changes implemented after July allows the company to release its financial reserve set aside for tariff-related costs.

The analysts said they concur with the options market that the earnings report could be a "high-volatility event."

UBS' rating on the company's stock is buy with a price target of $40.

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