What Happened?

Shares of clothing and accessories retailer Gap (NYSE:GAP) jumped 6.4% in the afternoon session after Argus Research analyst Christine Dooley upgraded the stock's rating from Hold to Buy. The analyst cited the potential for a turnaround across key brands (Gap, Banana Republic, Old Navy, and Athleta) while acknowledging management's efforts to "revitalize the brands."

The shares closed the day at $24.89, up 6.1% from previous close.

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What The Market Is Telling Us

Gap’s shares are quite volatile and have had 17 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business. 

The biggest move we wrote about over the last year was 2 months ago when the stock gained 17.8% on the news that the company reported strong third-quarter results that blew past analysts' profits and earnings expectations. Top line growth was supported by a 5% increase in comparable sales for the Athleta brand, which rebounded after a period of declining sales. Additionally, the Old Navy brand saw increased demand as cooler weather drove sales. 

Moving to the bottom line, margins improved due to increased inventory management and reduced promotional activity, and this helped the company exceed analysts' EBITDA and earnings expectations. 

Looking ahead, management highlighted a strong start to the holiday season. Combined with improved quarterly performance, this allowed the company to raise its full-year sales outlook. Zooming out, this quarter featured many important positives.

Gap is up 5.5% since the beginning of the year, but at $24.90 per share, it is still trading 14.2% below its 52-week high of $29.03 from June 2024. Investors who bought $1,000 worth of Gap’s shares 5 years ago would now be looking at an investment worth $1,372.

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