Gap's Holiday Quarter Was a Big Win and Stock Soars 19%. Here's What's Working for the Retailer

Dow Jones
03-07

Gap Inc. shares rallied 18.6% in the extended session Thursday after the retailer reported a holiday-quarter profit that was head and shoulders above Wall Street's expectations and it spoke of a "reinvigoration" of its brands, guiding for better sales this year even with tariffs.

The company's Old Navy, Banana Republic and the namesake Gap brands all reported quarterly same-store sales increases, including a 7% rise for Gap same-store sales. That seemed to give investors hope that the retailer's long-running turnaround plan is working.

The Gap brand "is back in the cultural conversation," Chief Executive Richard Dickson said in a call with investors after the results.

A new generation is being attracted to Gap and the company expanded its customer base in 2024, he said. Categories such as fleece, denim and sweaters resonated with customers, Dickson said.

"The brand campaigns and collaborations are attracting a new generation to Gap while reinforcing the brand to those who loved us for years," he said.

The exception was the company's athleisure brand Athleta, where comparable-store sales were down 2% for the quarter and flat for the year.

Dickson said while the company's "ambitions for Athleta remain high," it will be strengthening its product offerings and ensuring newness to "excite" shoppers.

Overall, the company is stronger and has consistently proven its "ability to navigate a highly dynamic macro environment while delivering results," he said.

Gap's $(GAP)$ per-share profit came in at 54 cents a share, compared with FactSet consensus for 36 cents a share.

The company reported net sales of $4.1 billion for the fourth quarter, down 3% compared with last year's fourth quarter but including a negative impact from a calendar shift that meant that 2024 had one fewer week than the previous year. The quarterly sales were in line with FactSet consensus.

Sales hit $15.1 billion for all of 2024, up 1% compared to the prior year. Gap also guided for a 1% to 2% boost for its 2025 sales, which would compare with Wall Street expectations for a flat year for revenue.

Gap said that its guidance includes its "best assessment" of potential headwinds to consumer spending, including tariffs and inflation.

On the post-results call with investors, Chief Financial Officer Katrina O'Connell said that the company has sourced less than 10% of its product from China, and less than 1% from Canada and Mexico combined.

"Our fiscal 2025 outlook is informed by what we know today regarding tariff policy, and includes any expected margin impact, albeit small, from current actions related to those countries," she said.

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