24/7 Wall St. Insights

• Gap Inc. (NYSE: GPS) has finally posted strong quarterly results.
• Its stock has benefited from the long-awaited signs of a turnaround.

Gap Inc. (NYSE: GPS) has endured years of falling sales, several chief executive officers, store closings, and turnaround plans. Management finally found the right formula and posted strong quarterly results, which pushed up its share price.

Gap’s stock price has increased 20% in the past five years, compared to the S&P 500’s huge 90% run-up. However, investors recently started to believe in its plans. As measured from the start date of those five years, the stock was down 67% in May of last year.

Gap owns the Gap, Old Navy, Banana Republic, and Athleta brands. In the most recent quarter, revenue rose 3% to $3.4 billion. Same-store sales rose by the same amount. Gap has 3,571 store locations spread across its brands. Earnings came in at $0.42, which compared to a loss of $0.05 in the same quarter the year before.

Perhaps the most important part of the earnings was that all brands showed improvement. Comparable store sales for both Old Navy and the Gap brand rose 3% year over year. Banana Republic was up 1%, and Athleta rose 5%. Last year, all but the Gap brand showed a comparable store sales decline.

CEO Richard Dickson, hired in August 2023 from Mattel, has shown that the board made the right decision. “Our first quarter results are giving us confidence to raise both sales and operating income guidance for the full year,” he said as earnings were announced.

Gap still has to contend with competitors Abercrombie & Fitch, Talbots, Macy’s, J.Crew, Forever 21, American Eagle Outfitters, and several larger retailers. However, it has shown investors it is still in the game.

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