Investors are optimistic about Gap's (GAP, Financial) Q3 earnings, as the company, in turnaround mode, raised its full-year guidance ahead of the holiday season. Gap achieved its fourth consecutive quarter of net sales growth, expanded gross margin, recorded its highest Q3 operating margin in seven years, and gained market share for the seventh consecutive quarter.
- Total comps rose by 1%, slightly down from 3% in Q2, yet still solid. Old Navy, Gap's largest brand, had flat comps but gained market share despite weather challenges. The men's and women's segments showed strength, while the kids and baby segment slowed mid-quarter due to warm weather. A sales increase followed as the weather cooled, boosting confidence for the holiday season. Old Navy is enhancing its merchandising, pricing clarity, and marketing, with holiday benefits expected from improved store visuals, holiday shops, and an ad campaign featuring Jennifer Hudson.
- Gap brand comps increased by 3%, marking the fourth consecutive quarter of positive comps and the sixth of market share gains. Successful campaigns and collaborations, like the Get Loose campaign featuring Troye Sivan, are attracting younger consumers.
- Banana Republic saw a slight decline in comps at -1% in Q3. Efforts are underway to reestablish the brand in the premium lifestyle space, with strong performance in men's business. Improvements are being made in women's offerings, with better in-stock plans for key basics for the holiday season. The brand is also shifting its media strategy towards social and influencer marketing.
- Athleta led with a 5% increase in comps. The brand is enhancing its product, marketing, and stores, aiming to boost traffic and strengthen brand communication with customers.
Overall, Gap is showing progress in its turnaround, with momentum building across its brands as it approaches the holiday season. Banana Republic may require more time to improve. The stock, after a rise in Q1 earnings in early June, consolidated in the $20-24 range, but this report offers a chance to test the upper limits of this range.
