Gap (GPS) shares surged higher Friday after the clothing retailer swung to profit over the third quarter thanks in part to firmer demand for its higher-end clothing.
Gap, which also operates the Old Navy and Banana Republic brands, said adjusted earnings for the three months ending in October were pegged at 77 cents per share, with revenues up 2.5% to a Street-beating $4.04 billion.
The group also booked a $53 million impairment changed linked to its decision to sever a partnership with Kanye West, known as Yeezy Gap, following the singer's anti-Semitic remarks last month. Looking into the holiday quarter, Gap said it sees net sales down by 'mid-single digits', in percentage terms, from last year's levels.
"We saw consistent category strength in dresses, sweaters, pants and woven tops across the portfolio, with active underperforming across the board as consumers continue to shift away from the cozy at-home lifestyle," interim CEO Bobby Martin told investors on a conference call late Thursday.
"While Athleta isn't immune to the change in consumer preference, despite moderation of growth in the women's active market, the brand is showing strength in lifestyle categories like dresses and accessories that are demonstrating disproportionate growth in today's current environment," he added.
Gap shares were marked 7.6% higher in early Friday trading to change hands at $13.71 each, a move that would still leave the stock down more than 25% for the year.
Gap's solid quarter capped a solid week for retail earnings, marred only by a worse-than-expected update from Target (TGT) on Wednesday, which lowered its full-year profit forecast, amid what the retailer called a "meaningful shift" in spending habits linked to surging inflation and broader economic uncertainty.
GAP CFO Katrina O'Connell, however, echoed comments from Target CEO Brian Cornell, noting that the group saw "strong volume in October slow a bit in the end and a little bit of a slow start to November," during last night's analyst call.
"But that said, it's early days and we know that some of that was weather and potentially some other disruption happening out there," she added. "So we'll see what plays out. But certainly, we did see a little bit of that similar trend."
