Gap shares spike 17% as retailer blows away expectations again, showing turnaround has staying power

Gap on Thursday posted another quarter that blew away expectations, indicating its turnaround under CEO Richard Dickson is working better – and faster – than Wall Street anticipated. 

Shares jumped 17% in extended trading Thursday.

The apparel retailer behind Old Navy, Banana Republic, Athleta and its namesake banner beat expectations on the top and bottom lines during the all-important holiday quarter and saw comparable sales grow 3%, ahead of expectations of up 1%, according to StreetAccount.  

Here’s how Gap did in its fiscal fourth quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:

• Earnings per share: 54 cents vs. 37 cents expected
• Revenue: $4.15 billion vs. $4.07 billion expected

The company’s reported net income for the three-month period that ended Feb. 1 was $206 million, or 54 cents per share, compared with $185 million, or 49 cents per share, a year earlier. 

Sales dropped to $4.15 billion, down about 3% from $4.30 billion a year earlier. Like other retailers, Gap benefited from an extra selling week in the year-ago period, which negatively skewed comparisons.

In the year ahead, Gap is expecting sales to grow between 1% and 2%, in line with expectations of up 1.7%, according to LSEG. For the current quarter, its guidance was slightly weaker than anticipated. It’s expecting sales to be “flat to up slightly,” compared to Wall Street estimates of up 1.5%, according to LSEG. 

Like other retailers caught in the midst of President Donald Trump’s trade war with China, Canada and Mexico, Gap has been working to figure out the impact new duties will have on the company. In an interview with CNBC, Dickson said less than 1% of its product comes from Canada and Mexico, combined, and less than 10% comes from China.

When asked if the company will raise prices, Dickson said the “goal is to minimize the impact to the consumer.”

“We’re going to be working with our suppliers. We’re looking at our cost base, and we’ll need to balance that with always protecting the structural economics of the business,” said Dickson.

Gap’s finance chief Katrina O’Connell added tariffs, as they stood on Thursday, were embedded into the company’s guidance and said any impact to margin is expected to be “relatively minimal.”

It’s been about a year and a half since Dickson took over as Gap’s CEO. Under his direction, the company has gotten back to growth and repaired its brand image — and in fiscal 2024, delivered its highest gross margin in more than 20 years at 41.3%. 

The former Mattel executive, credited with reviving the Barbie empire, has brought that same prowess to revitalizing Gap’s brands. After a fourth straight quarter of strong results, it appears the strategy has staying power. 

Apparel from Zac Posen, Gap’s creative designer, has been worn recently by celebrities like Timothee Chalamet, and even the company’s underperforming Banana Republic brand has returned to growth. Its athleisure brand Athleta is still strugging, but the company has stabilized the bleed and it’s no longer shrinking. 

Here’s a closer look at how each brand performed during the quarter. 

Gap’s largest brand by revenue saw sales of $2.2 billion, with comparable sales up 3%, topping of expectations of up 0.7%, according to StreetAccount. The brand saw strength in denim and activewear. 

The namesake banner’s comparable sales grew 7%, well ahead of estimates of up 0.8%, according to StreetAccount. The brand’s longtime chief product officer Chris Goble left Gap in October for Dickie’s, but the company filled the position internally after he left. Dickson told CNBC in an interview that the brand has “great leadership” and is “staffed with extraordinary talent.” 

The safari chic, officewear brand saw comparable sales grow 4%, when analysts expected them to shrink by 1.5%, according to StreetAccount. It continued to build strength in men’s apparel but is still without a CEO. Dickson expects the company to have an update on the role “shortly.” 

The athleisure brand’s comparable sales fell 2% during the quarter after it failed to offer the right types of products necessary for its core consumer, explained Dickson. Analysts didn’t have expectations for Athleta’s comparable sales.  

“We certainly have entered the cultural conversation again, and it reinforces that we do believe in this brand. We have long-term opportunities, but we do have work to do to reset the brand,” said Dickson. “In the fourth quarter, very specifically, you know, we needed to do more to excite our core consumer during the holiday period, we did a good job attracting new consumers. We did a great job reactivating customers, but we lacked the depth of product interest for our core customer at that holiday time.”