Gap Inc.
stock surged early Friday after the retailer’s earnings showed a good start to its turnaround. But one analyst urged caution and said it was still early days under new CEO Richard Dickson.
The shares jumped 18% in premarket trading and were on track to open at their highest level since February 2022.
Dickson joined Gap (ticker: GPS) in August leaving his role as president and chief operating officer at
Mattel
(MAT), where he helped revitalized the Barbie brand. Investors will be hoping he can have the same impact with the retailer’s
Gap,
Old Navy, Banana Republic and Athleta brands.
The new CEO’s first full quarter earnings certainly offer encouragement. Same-store sales fell 2% in the third quarter compared with last year, better than the 8.7% drop expected by analysts. Net sales fell 7% to $3.8 billion, but beat expectations of $3.5 billion. The decline also included two percentage point hit from the sale of Gap China earlier this year. Adjusted earnings per share of 59 cents also convincingly beat estimates of 20 cents per share.
Comparable sales at Old Navy even rose 1% compared to last year.
Jefferies analysts, led by Corey Tarlowe, said the positive performance in its Old Navy business positioned the company for its turnaround. They increased their price target to $14 from $12 but maintained a Hold rating on the stock.
“With Dickson’s first full quarter under his belt, we believe GPS is on the right track to drive continued improvements ahead. That said, the company is still in the early innings of its turnaround and [we] remain cautious,” they said.
Dickson’s previous experience with reinvigorating brands, such as Barbie and Hot Wheels, will give Gap a “head start” in driving improvements across the business, they noted. “We expect investors to increasingly focus on Dickson’s approach to improving brand relevance and the company’s brand offering.”
It’s a good start under the new boss but shareholders will need more evidence of a sustained improvement in the months ahead to justify Friday’s stock jump.
Write to Callum Keown at [email protected]
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