Gap Shares Surges 21% on Raised Guidance, Q1 Earnings Beat

SAN FRANCISCO – Gap Inc. (NYSE: NYSE:) shares soared 21% following the announcement of their first quarter financial results, which surpassed analyst expectations and prompted the company to raise its full-year guidance. The positive market response was driven by the retailer’s strong earnings and the upward revision of its future outlook.

For the first quarter ended May 4, 2024, Gap reported a notable increase in earnings per share (EPS) of $0.41, significantly higher than the analyst consensus of $0.14. Revenue also exceeded expectations, coming in at $3.4 billion against the anticipated $3.28 billion.

This represents a 3% increase in net sales compared to the same quarter last year, with comparable sales also rising by 3% YoY.

Gap’s President and CEO, Richard Dickson, commented on the results, “Gap Inc. delivered a strong quarter that exceeded expectations across key metrics.”

He attributed the success to market share gains for the fifth consecutive quarter and positive comparable sales across all brands. Dickson’s confidence in the company’s trajectory was evident as he announced raised sales and operating income guidance for the full year.

The apparel giant’s robust performance was reflected across its brand portfolio, with Old Navy and Athleta showing particularly strong comparable sales growth of 3% and 5%, respectively. Gap brand maintained its positive trajectory with a 3% increase in comparable sales, while Banana Republic also saw an improvement with a 1% rise.

The company’s gross margin improved significantly, with a 410 basis point increase over last year’s reported figures. This was primarily driven by lower commodity costs, which boosted merchandise margin by 340 basis points on a reported basis. Operating income for the quarter was reported at $205 million, with an operating margin of 6.1%.

In light of these strong results, Gap has revised its fiscal 2024 outlook upwards, now expecting higher net sales and a more substantial increase in operating income growth compared to previous estimates.

In the wake of the report’s release, Evercore ISI analysts reiterated their Buy rating on GPS stock and lifted the target price from $24 to $32. 

“We’re highly encouraged to see total GPS comp +3% in the quarter. More importantly, we’re particularly surprised that all 4 divisions comped positive in the quarter,” Evercore analysts said. 

“With accelerations at ON, BR, and Athleta comps, and a proven ability to find efficiencies in the operating model, we see increased visibility to the upside power in GPS’ model.”

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