News

What Happened?

Shares of clothing and accessories retailer Gap (NYSE:GAP) jumped 18.9% in the pre-market session after the company reported impressive fourth quarter results that beat analysts' revenue and EPS expectations. What drove shares up was the full-year guidance for operating profit growth. The company called for 8-10% growth, which was well above expectations. While store closures continued as part of its optimization strategy, growth in online sales and improved operating efficiency should help sustain profitability. Overall, this was a strong quarter, with the company positioning itself for solid earnings growth.

The shares closed the day at $23.12, up 18.6% from previous close.

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What The Market Is Telling Us

Gap’s shares are very volatile and have had 20 moves greater than 5% over the last year. But moves this big are rare even for Gap and indicate this news significantly impacted the market’s perception of the business.

The biggest move we wrote about over the last year was 4 months ago when the stock gained 17.8% on the news that the company reported strong third-quarter results that blew past analysts' profits and earnings expectations. Top line growth was supported by a 5% increase in comparable sales for the Athleta brand, which rebounded after a period of declining sales. Additionally, the Old Navy brand saw increased demand as cooler weather drove sales.

Moving to the bottom line, margins improved due to increased inventory management and reduced promotional activity, and this helped the company exceed analysts' EBITDA and earnings expectations.

Looking ahead, management noted a strong start to the holiday season. Combined with improved quarterly performance, this allowed the company to raise its full-year sales outlook. Zooming out, this quarter featured many important positives.

Gap is down 2.1% since the beginning of the year, and at $23.11 per share, it is trading 20.4% below its 52-week high of $29.03 from June 2024. Investors who bought $1,000 worth of Gap’s shares 5 years ago would now be looking at an investment worth $1,963.

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