Gap, BJ's Wholesale, and Ross retailers: Trending Tickers

Gap (GPS) soared after reporting better-than-expected third-quarter results, posting $3.77 billion in revenue versus $3.60 billion expected. Despite sales dropping to $3.77 billion, down from $4 billion last year, the stock is up 30% for the day and almost 60% year-to-date.

BJ's Wholesale (BJ) reported third-quarter earnings. The warehouse club retailer's same-store sales missed estimates and cited shifts in consumer behavior and other headwinds for its weaker sales outlook.

Ross Stores (ROST) third quarter results beat analyst estimates on both the bottom and top-line. The retailer also boosted its full-year guidance. During the company conference call, CEO Barbara Rentler said “we also remain confident in the resilience of the off-price sector, and our ability to operate successfully within it, especially given consumers’ heightened focus on value and convenience,” pointing to wary consumers who have been looking for value during high inflation.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

JOSH LIPTON: Shares of Gap, let's start there, surge on better than expected results, proving its cost-managing efforts are paying off. Retailers are seeing improving profit margins as positive signs at Old Navy and Gap bounced, the continuing work underway at Athleta and Banana Republic. So this one is interesting big pop today. I mean, better than expected Q3 results.

So, same stores fell, but less than expected, so that helped. Old Navy picking up, maybe, some of the slack, Julie, from Banana Republic and Athleta. Old Navy comparable sales rose for the first time since 2021. Gross margins, they improved from a year ago, above consensus, so-- and that was kind of one theme we did see this week from other retailers, too. You just saw the kind of pulling levers to improve profitability, even as same-store sales declined.

JULIE HYMAN: Yeah. So one of the things that really stuck out to me were some comments from Ike Boruchow over at Wells Fargo, who said Gap delivered the most compelling beat this EPS season, even with a very high bar to clear. So I thought that was quite interesting. It bodes well, perhaps, for Richard Dixon and his turnaround efforts at the company.

And also, I kind of was trying to situate it in my mind in the bigger retail story that we have heard from, you know, that some of these beaten down retailers that really have struggled, some of them are starting to gain a little bit of traction, you know, on the margin side as well. That's something that we've been watching closely. Inventory levels broadly are much healthier now. Gap was one of those that we heard that from, as well.

And then it also perhaps has some implications for some of the retailers that are still yet to trickle out, right? We're getting towards the end here, but we still are going to hear from Abercrombie and Fitch next week, as well as American Eagle. You could argue that there's some crossover between those and the likes of a Gap or an Old Navy. So we were watching those stocks as well in today's session.

JOSH LIPTON: And more to watch next week, for sure.

JULIE HYMAN: Yeah, definitely. And sticking with retail. I want to talk about BJ's Wholesale. Because, as we talk about the sort of themes in this retail season, on the one hand you have the beaten-up ones like Gap, on the other you have this theme now, as highlighted by Walmart, of deflation. In other words, yes, inflation made it much tougher for a BJ's customer or a Walmart customer, overall.

But it also allowed, to some extent, these retailers to raise prices. So now, if there is deflation on the advantageous side of that equation, as Walmart pointed out, that means their, you know, their customers are going to be in better shape. But maybe the margins are going to come under some pressure. So that's something I think we're going to continue to watch closely . And BJ's having lower comparable sales growth.

JOSH LIPTON: Yeah, BJ's in the red year-to-date. I'm just looking through some of the analyst commentary as well, you know, Baird, for example. Now they're still believers outperform, so the equivalent of a buy there, their price target, they tell their clients, is 80. They like what they saw in membership. They like the profit results. But the market, they note, is going to focus on those softer sales view, at least near term here. And you can see those sliding today.

JULIE HYMAN: Yeah.

JOSH LIPTON: All right, final one here. Let's take it Ross Stores reporting a beat on the top and bottom line while raising its full-year 2023 earnings outlook. Several analysts also raising their price targets on Ross Stores following those upbeat results we saw today. So this was another-- so discount retailer clearly. Q3 EPS of a 133, that was a beat. Sales for $4.92 billion that was a beat as well. Comparable sales up 5%.

Analysts were expecting something like 3%. I thought the interesting commentary, though, from the execs and they highlighted-- listen, there's some near-term reasons for caution here. They pulled out macroeconomic volatility, persistent inflation. They even talked about kind of the new geopolitical uncertainty we're seeing, which they said, listen, if you want to know why we're maintaining a kind of more cautious, prudent outlook, that's why.

JULIE HYMAN: At the same time, if you take Ross in combination with, say, a TJX, right? Again, pointing to that consumers are still spending on apparel, right, and home goods, in the case of TJX, they want to save some money, though. They want to feel like they're getting a deal. So I thought it was pretty notable here that the company saw that 5% comp sales gain that was 2 percentage points better than estimated, right?

So there's just a lot of unevenness during this retail holiday season-- earnings season going into holiday season, in terms of the trends that we're seeing. But the choicfullness, right, the desire to save money, those things seem to be one of the through lines that we are watching.

JOSH LIPTON: Yeah. And it's interesting you bring up TJX, too, because they were similar in that strong prints, but maybe conservative profit forecasts, at least, relative to expectations.

JULIE HYMAN: Yeah, good point.