Gap stock jumps 15% despite muted outlook for holiday quarter

Gap Inc (NYSE: GPS) jumped 15% in extended hours on Thursday after reporting strong results for its fiscal third quarter.

Gap stock is not much bothered by Q4 guidance

The price action is interesting considering the apparel retailer issued a somewhat downbeat guidance for its holiday quarter as it continues to struggle with a slowdown at Athleta and Banana Republic.

Gap expects sales to remain flat or even slide a bit in its fourth financial quarter. Analysts, in comparison, had called for a 0.3% increase instead.

The New York-listed firm did, however, reiterate its outlook for the full year on Thursday. Gap stock is now up more than 100% versus its year-to-date low in late May.

Gap third quarter financial highlights

• Earned $218 million versus the year-ago $282 million
• Per-share earnings also declined from 77 cents to 58 cents
• Adjusted EPS printed at 59 cents as per the press release
• Sales went down 7.0% year-over-year to $3.77 billion
• Consensus was 19 cents a share on $3.60 billion revenue

Gap saw a 2.0% hit only to its same-store sales in the recently concluded quarter – far better than down 8.7% expected.

Gap continued to improve margins in Q3

Other notable figures in the earnings report include a 390 basis points increase in gross margin on the back of fewer promotions, lower commodity costs, and commitment to cutting costs.

Experts had forecast a 150-bps improvement in gross margin instead. More importantly, Gap is confident that its gross margins will improve further moving forward.

In August, Gap named Richard Dickson its new Chief Executive. Dickson has previously served at notable names like Mattel.