Gap raises annual sales target betting on steady holiday demand

(Reuters) – Gap Inc (NYSE:GAP) raised its annual sales forecast on Thursday and said the holiday season was off to a “strong start”, sending its shares up nearly 14% in extended trade.

Gap’s reported sales grew for a fourth consecutive quarter, and the company also topped profit expectations as it executes a turnaround under CEO Richard Dickson, who took on the role in August 2023.

With shoppers budgeting to purchase trendy styles, Gap’s strategy of paring back discounts and stocking fresher, popular items in its stores has helped the company appeal to a broader customer base. 

Gap now expects full-year net sales to rise between 1.5% and 2%, compared with its earlier target of marginal growth.

Dickson has emphasized returning to the company’s roots as a “pop culture brand,” creating marketing campaigns for its casual wear that focus on music and fashion, such as “Get Loose.”

The holiday period was off to a “strong start,” Dickson said in a statement, as Gap’s third-quarter net sales rose 2% to $3.8 billion, aligned with estimates.

Athletic apparel maker Under Armour (NYSE:UA) also raised its annual profit forecast earlier in November as CEO Kevin Plank’s turnaround plan to offer popular designs at full price helps drive demand.

Gap’s Old Navy brand has also been gaining back lost ground with fresher styles for denim and dresses appealing to customers at full price, with similar gains reflecting in Athleta, its athletic wear unit.

The company has managed to maintain leaner inventory levels, driving costs lower. Inventory was down 2% in the reported quarter, following a 5% decrease in the preceding three-month period.

It raised its gross margin expansion target for the year by 20 basis points, after reporting a 140 basis point increase in gross margin for the quarter ended Nov. 2.

Gap earned third-quarter profit per share of 72 cents, compared with analysts’ estimate of 58 cents, as per data compiled by LSEG.