What Happened?

Shares of clothing and accessories retailer Gap (NYSE:GAP) jumped 17.8% in the morning session after 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 noted 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.

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What The Market Is Telling Us

Gap’s shares are quite volatile and have had 15 moves greater than 5% over the last year. But moves this big are rare even for Gap and indicate this news significantly impacted the market’s perception of the business.

The biggest move we wrote about over the last year was 9 months ago when the stock gained 10% on the news that the company reported third quarter results that blew past analysts' EPS expectations. Its revenue and gross margin also outperformed Wall Street's estimates despite the headwind from the sale of Gap China. Guidance for the upcoming year was relatively in line with expectations, likely sparking some relief from investors. Zooming out, this was a solid quarter.

Gap is up 15.2% since the beginning of the year, but at $24.04 per share, it is still trading 17.2% 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 $1,420.

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