Gap Shares Climb 30% on Earnings Report Despite Sales Slump

Shares of Gap Inc. soared nearly 30% on Friday, a day after a stronger-than-expected earnings report.

Gap blew past analyst estimates in its third quarter, raking in adjusted earnings per share of 59 cents, compared with an expected 19 cents per share, according to estimates collected by LSEG, formerly Refinitiv, and reported by CNBC. The clothes retailer brought in $3.8 billion in revenue, surpassing projections of $3.6 billion.

“We were pleased to see market share gains as well as improvements in both gross margins and operating margins, demonstrating our ability to drive operating and financial discipline,” Gap president and chief executive Richard Dickson said in the report. “This rigor has put the company on stronger financial footing and is enabling us to focus on reinvigorating our portfolio of brands, strengthening our operating platform, and reviving our culture for success.”

It wasn’t all rosy, however. Despite beating expectations, Gap's revenue was still down 7% from the year-ago period, and it saw saw a 6% slump in store sales and an 8% drop in online sales.

The company’s fourth-quarter outlook puts net sales as flat to slightly negative, as opposed to analysts’ expectations of a 0.33% increase, due to dragging sales at Banana Republic and Athleta. Old Navy fared slightly better, with comparable sales up by 1% year-over-year, compared with a 1% dip at Gap, an 8% drop at Banana Republic and a 15% plunge at Athleta.

In his first analyst call as CEO, Dickson said the company is holding a “balanced view of the holiday season” as it remains “mindful of the uncertain consumer environment.”

Gap brought on Dickson, the former president and operating chief at Mattel, as its new CEO in July in hopes of turning around the iconic but stagnating brand.

“Among the insights I’ve gained in the last three months is a recognition that Gap Inc. has weathered a lot of disruption over the last several years, both external macro factors as well as execution missteps, and strategically well-intended initiatives have impacted the company,” Dickson said in the analyst call. “All that said, the opportunity is clear, and I have conviction that we can reinvigorate our portfolio of brands.”