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Gap reports third-quarter earnings beat, but offers tame holiday quarter guidance

Published 11/16/2023, 04:30 PM
Updated 11/17/2023, 06:02 AM
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Investing.com -- Shares in Gap (NYSE:GPS) surged in premarket U.S. trading on Friday after the retailer posted higher-than-anticipated third-quarter income, although the firm flagged some caution over trading in its key holiday quarter.

In the three months to Oct. 28, the San Francisco-based owner of brands like Athleta and Banana Republic reported adjusted profit of $0.59 per share, trouncing Bloomberg consensus estimates of $0.19, thanks in part to moderating promotional activity, lower input costs, and strength at its Old Navy division.

Same store sales declined by 2%, but that was well below estimates for a fall of 8.7%.

"Even with a very high bar, [Gap] delivered the most compelling beat this [earnings] season," analysts at Wells Fargo said in a note to clients. "The story has legs."

Analysts viewed the returns as largely positive for new Chief Executive Officer Richard Dickson, the former Mattel (NASDAQ:MAT) executive who has been tasked with driving a recovery in recently sluggish demand for Gap's casual attire.

Yet Dickson conceded in a post-earnings call that the company, which has also been hit by increased competition from peers like Shein and Amazon.com (NASDAQ:AMZN), still needs to create "trend-right product assortments" to bring more customers back into its stores.  

"[W]e believe the company is still in the early innings of its turnaround and remain cautious," analysts at Jefferies said in a note.

Gap projected flat to slightly negative net sales growth in the current quarter, disappointing expectations that it would forecast an increase of 0.33%, according to LSEG numbers cited by Reuters. Sales at Banana Republic and Athleta, in particular, are seen falling during the period, which includes the crucial holiday shopping season.

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Gap's outlook echoes comments this week from peers Target and Walmart (NYSE:WMT), in a sign that retail chains are still wary of the spending habits of inflation-squeezed consumers.

Yasin Ebrahim contributed to this report.

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