Gap's Stock Rises 23% as Guidance is Raised and the Retailer Swings to Profitability

Gap Inc. shares surged over 20% in after-hours trading on Thursday, following the company's announcement of first-quarter earnings and sales that significantly exceeded investor expectations. Additionally, Gap raised its annual guidance and reduced its inventory levels.

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CEO Richard Dickson expressed confidence in the company's strong financial position and its future outlook during a call with analysts. He highlighted the positive response from consumers to Gap's turnaround efforts.

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CFO Katrina O’Connell emphasized the company's impressive performance, pointing to improved sales trends, expanded gross margins, disciplined expense management, lean inventory, and a robust balance sheet. She noted that achieving consistency is a gradual process.

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For the fiscal first quarter, Gap reported earnings of $158 million, or 41 cents per share, a significant improvement from the previous year's loss of $18 million, or 5 cents per share. Sales increased by 3% to $3.4 billion, with a notable 5% revenue rise for its Old Navy brand. Same-store sales grew by 3%.

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Analysts surveyed by FactSet had anticipated earnings of 15 cents per share on sales of $3.29 billion, with same-store sales expected to increase by 1.1% in the quarter.

Gap also reported that it ended the quarter with inventory valued at $1.95 billion, a 15% reduction compared to the previous year.

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Buoyed by strong first-quarter net sales and significantly higher operating income growth than previously expected, Gap raised its fiscal 2024 guidance. The company now projects slight net sales growth for the fiscal year, compared to an earlier forecast of flat sales. For the fiscal second quarter, Gap anticipates low single-digit growth.

Gap acknowledged the persistent uncertainties in the consumer and macroeconomic environment while providing this outlook.

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Richard Dickson, who joined Gap in July after a lengthy tenure at Mattel Inc., has played a pivotal role in the company's recent progress. In February, Gap appointed fashion designer Zac Posen as its new creative director. Additionally, actresses Anne Hathaway and Da’Vine Joy Randolph recently wore Gap dresses at red-carpet events, with Hathaway's shirtdress quickly selling out upon its release this week.

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In response to these developments, Gap shares soared 23.5% in after-hours trading. Year-to-date, the stock has gained approximately 8%, compared to the S&P 500 index's roughly 10% increase.

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