Gap lifts annual sales target on 'strong' holiday demand; shares soar

By Juveria Tabassum

(Reuters) -Gap Inc raised its annual sales forecast on Thursday and said the holiday season was off to a "strong start", sending the Old Navy parent's shares up 15% in extended trade.

Gap's sales grew for a fourth consecutive quarter, and the company also topped profit expectations as it rounds off a year of turnaround under CEO Richard Dickson.

With shoppers budgeting to purchase trendy styles, Gap's strategy of paring back discounts and stocking fresher, popular items that hark back to its roots as a "pop culture brand" has helped the company appeal to a broader customer base. 

Gap now expects full-year net sales to rise between 1.5% and 2%, compared with its earlier target of marginal growth.

Old Navy has been regaining lost ground with fresher styles in denim and dresses, with similar gains reflecting in Athleta, its athletic wear unit.

Gap and athletic apparel maker Under Armour (NYSE:UA ) have defied broader weakness in spending on apparel and accessories this year as customers hold out either for steep discounts or save up to buy trending and popular items.

"Right now we are focused on winning early," said Katrina O'Connell Gap's financial chief on a post-earnings call, commenting on the company's plans for the shortened holiday shopping period. 

"We have a much more pronounced holiday expression in our stores and are driving relevant interest and early customer engagement." 

Gap's third-quarter net sales rose 2% to $3.8 billion, aligned with estimates, while its profit per share of 72 cents handily beat expectations of 58 cents, as per data compiled by LSEG. 



Warmer weather hit sales in the third quarter, particularly at Old Navy. "Once the weather became cooler in November, they saw a return of customers early in the fourth quarter. Given that, they feel much more confident heading into the holiday season," said Matt Jacob of MScience.

Gap also raised its annual gross margin expansion target for the year by 20 basis points as the company maintained leaner inventory levels, and signed long-term freight contracts to drive costs lower.

Source: Investing.com