Gap Stock Surges After Turnaround Plan Drives Quarterly Results, Raised Outlook

Gap Inc. (GPS) shares surged more than 23% in extended trading on Thursday after the clothing and accessories retailer posted a better-than-expected quarterly earnings report and raised its full-year guidance in signs that the company’s turnaround plan is paying off.

For the three month period ending May 4, the retailer posted earnings per diluted share of 41 cents, crushing analysts’ estimates of 14 cents a share. Sales in the quarter of $3.39 billion grew 3% from a year earlier and topped expectations of $3.29 billion.

What’s Behind Gap’s Stellar Earnings?

Gap’s comparable store sales increased 3% from the year-ago period, showing a significant improvement from a 4% decline in last year’s corresponding quarter. The turnaround was driven by positive same store sales growth in each of the retailer’s four brands, which include Old Navy, Gap, Banana Republic, and Athleta.

Looking ahead, the company raised its full-year guidance, saying it now expects net sales to be up slightly, an improvement on its prior forecast where its projected flat annual sales. It also lifted its full-year operating income outlook to the mid-40% growth range, significantly higher than its earlier forecast of growth in the low-to-mid teens.

“We’re feeling very confident about our quarter and it has given us the confidence to raise our guidance for full year 2024, both the outlook for revenue and operating margin,” Gap CEO Richard Dickson told CNBC in an interview following the quarterly results.

Dickson, who Gap appointed CEO last August, has led an ambitious turnaround plan that has seen the retailer work on improving its operational efficiency and reposition the company’s brands at the forefront of culture. Thursday’s quarterly results and outlook indicate that plan is working and resonating with investors.

Monitor This Key Chart Level Amid Earnings-Driven Surge

Since finding a bottom in May last year, Gap shares have trended higher, with gains accelerating after the 50-day moving average (MA) crossed above the 200-day MA in early October to form a golden cross pattern. Leading into the retailer’s quarterly results, the stock has rallied towards the 50-day MA after a period of recent consolidation, indicating bullish expectations by market participants.

Amid the stock’s projected earnings-driven surge on Friday, investors should closely monitor the $28.50 level, an area where the price would likely run into overhead resistance from its March 2024 high.

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As of the date this article was written, the author does not own any of the above securities.