Why Is Gap (GPS) Stock Rocketing Higher Today
What Happened:
Shares of clothing and accessories retailer The Gap (NYSE:GPS) jumped 10% in the morning session after the company reported third quarter results that blew past analysts' EPS expectations. Its revenue and gross margin also outperformed Wall Street's estimates despite the headwind from the sale of Gap China. Guidance for the upcoming year was relatively in line with expectations, likely sparking some relief from investors. Zooming out, this was a solid quarter.
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What is the market telling us:
Gap's shares are quite volatile and over the last year have had 22 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 4 months ago, when the stock gained 14.9% on the news that the company reported third quarter results that blew past analysts' revenue and EPS expectations, although its revenue declined in absolute terms. These beats were driven by better-than-expected same-store sales performance (analysts forecasted a 7% decline, and Gap posted a 2% decline). In the earnings release, management called out market share gains in the competitive casual apparel space. We were also excited its gross margin and free cash flow outperformed Wall Street's estimates - many were expecting Gap to post negative free cash flow.
Management noted that rigor around expenses "has put the company on stronger financial footing and is enabling us to focus on reinvigorating our portfolio of brands, strengthening our operating platform, and reviving our culture for success."
As a reminder, Gap has a new CEO at the helm. Richard Dickson assumed the role in August 2023, and this is a good start for the new leadership of a company that has had its fair share of troubles in the last few years. Zooming out, we think this was an solid quarter amid low expectations that should please shareholders.
Gap is down 0.2% since the beginning of the year, but at $20.88 per share it is still trading close to its 52-week high of $21.93 from December 2023. Investors who bought $1,000 worth of Gap's shares 5 years ago would now be looking at an investment worth $804.09.
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