Gap surges as upbeat sales estimates signal promising start to holiday season

By Ananya Mariam Rajesh

(Reuters) -Gap shares soared 16% on Friday, as a return to growth across all four brands after nearly two years encouraged the apparel retailer to lift its annual sales forecast in a robust start to the holiday shopping season.

The Old Navy parent's expectations of strong tidings come close on the heels of Walmart (NYSE:WMT )'s forecast of a resilient consumer but contrast with muted sales by Target (NYSE:TGT ), amplifying prospects of a mixed holiday shopping period.

CEO Richard Dickson, who took the helm in August 2023, has pushed to revamp the in-store experience and sell at full prices, tapping into the trend of customers ready to pay more for fresh styles.

"We are seeing the styles of Gap be more relevant and more appealing to a wider audience which is helping to drive the results that they're generating," Dana Telsey of Telsey Advisory Group said.

This compares with several quarters of weakness post-pandemic when Gap lost its edge as America's most sought-after brand for its casual wear such as jeans and khakis.

Gap forecast annual net sales to rise between 1.5% and 2%, compared with its earlier target of slightly up.

Its two struggling brands, Athleisure unit Athleta and Banana Republic, posted third-quarter sales growth of 4% and 2%, respectively.

"Holiday is off to a strong start," Dickson said. "We gained market share across all brands."

Gap is also addressing a shorter shopping season this year with only 26 days between Thanksgiving and Christmas, focused "on winning early".

"As we get closer to the holiday season ... retailers uptick their promotions but when you have goods that are differentiated and it creates demand, the promotions aren't as necessary," Dana Telsey said.



"So right now you can see certainly in the windows of Gap ... they do have differentiated items."

Gap's forward price-to-earnings ratio for the next 12 months, a common benchmark for valuing stocks, was 10.85, compared with 9.03 for American Eagle Outfitters (NYSE:AEO ) and 13.06 for Abercrombie & Fitch.

Source: Investing.com