Gap raises annual sales target to ‘strong’ holiday demand; Stocks rise by Reuters

Written by Juveria Tabassum

(Reuters) – Gap Inc raised its annual sales forecast on Thursday and said the holiday season was off to a “strong start”, sending shares of parent Old Navy trading up 15%.

Gap’s sales grew for the fourth quarter in a row, and the company also raised profit expectations as it wraps up a year of change under CEO Richard Dickson.

As consumers budget for the latest trends, Gap’s strategy of returning discounts and new stock, popular items that return to its roots as a “pop culture brand” has helped the company appeal to a wider customer base.

Gap now expects full-year net sales to rise between 1.5% and 2%, compared to its previous goal of slower growth.

Old Navy has regained lost ground with new denim and apparel styles, with similar benefits seen in Athleta, its sportswear unit.

Gap and athletic apparel maker Under Armor (NYSE: ) has defied much of the weakness in spending on apparel and accessories this year as customers hold on to deep discounts or savings to buy trendy and popular items.

“Right now we’re focused on winning early,” Gap chief financial officer Katrina O’Connell said on the earnings call, commenting on the company’s plans for the shortened holiday shopping season.

“We have a very prominent holiday message in our stores and we have the right interest and customer engagement in advance.”

Gap’s third-quarter net sales rose 2% to $3.8 billion, in line with estimates, while its earnings per share of 72 cents beat expectations for 58 cents, according to data compiled by LSEG.

Hot weather hit sales in the third quarter, especially at Old Navy. “When the weather cools down in November, they see a return of customers at the beginning of the fourth quarter. Given that, they feel more confident about the holiday season,” said Matt Jacob of MScience.

Gap also raised its annual goal to increase annual gross margin by 20 basis points as the company maintains reduced inventory levels, and signed long-term freight contracts to reduce costs.