Proactive Investors - Analysts have raised their price targets on Gap Inc (NYSE:GAP) (NYSE:GPS) after the clothing retailer reported an earnings beat for the third quarter.
The Old Navy, Banana Republic and Athleta parent company reported Q3 earnings per share of $0.72, ahead of Street estimates of $0.58.
Comparable sales growth of 1% missed the consensus of 1.7% due to weather, as consumers delayed purchases amid unseasonably warm weather.
Barclays (LON:BARC) analysts boosted their price target on Gap to $32 from $31, while Bank of America (NYSE:BAC) upped its price objective to $28.
Shares of Gap traded up 8.4% at $23.90 on Friday morning.
Gap earned an ‘Overweight’ rating from Barclays, who noted turnaround momentum across all of the retailer’s brands during Q3.
“Gap’s Q3 2024 is the fourth consecutive quarter of sales growth and margin expansion with Old Navy, Gap and Athleta gaining market share,” they wrote in a note to clients.
“Given that Old Navy, followed by Gap brand are the largest EBIT contributors to consolidated operating profit, we are encouraged by consistent profitable growth from both.”
They expect to see continued fixed-cost leverage margin recapture and benefits from Gap’s efforts to right-size its cost structure by closing stores, repositioning brands and purging inventory.
“Based on our proprietary inventory analysis, Gap has posted seven consecutive quarters of positive sales-to-inventory growth,” they noted.
Bank of America analysts repeated their ‘Neutral’ rating on Gap, noting they are encouraged by a more consistent sales trajectory but remain cautious on further margin improvement.
“Gap has achieved significant cost savings and management's commentary indicates that future efficiencies might be used to fund growth and offset inflation, rather than fall to the bottom line,” they wrote.
“We model fiscal 2024 gross margins up 350 basis points versus 2019 and expect improvement from here to be driven by lower promotions and stronger full-priced selling.”
They highlighted Athelta’s return to growth driven by strong marketing activations, a broader customer base, product newness and improved customer experience.
“Manamgement noted strength in limited edition drops with distribution set to expand in Q4. We think sales have momentum under the brand refresh,” they wrote.