Gap Stock Jumps 16% on Solid Q3 Earnings & Raised FY24 View

Core Viewpoint - The Gap, Inc. reported strong third-quarter fiscal 2024 results, with earnings and net sales exceeding expectations and showing year-over-year growth [1][3]. Financial Performance - Earnings per share reached 72 cents, surpassing the Zacks Consensus Estimate of 56 cents, and increased by 22% from the previous year's adjusted figure [1]. - Net sales rose by 2% year over year to $3.829 billion, exceeding the consensus estimate of $3.796 billion, marking the fourth consecutive quarter of growth [3]. - Comparable sales increased by 1% year over year, with notable performances from Old Navy, Gap, Banana Republic, and Athleta [3]. Brand Performance - Old Navy's net sales edged up 1% to $2.2 billion, with flat comparable sales year over year [5]. - Gap Global saw net sales grow 1% to $899 million, with comparable sales increasing by 3% [6]. - Banana Republic's net sales grew 2% to $469 million, while Athleta's net sales increased by 4% to $290 million, with both brands exceeding sales estimates [7]. Margins and Costs - Gross margin expanded by 140 basis points to 42.7%, exceeding the estimated adjusted gross margin of 41.8% [8]. - Operating margin increased by 250 basis points to 9.3%, the highest Q3 operating margin in seven years [9]. - Operating expenses remained flat year over year at $1.3 billion [11]. Financial Health - The company ended the quarter with cash and cash equivalents of $2 billion, a 45.7% increase from the previous year [12]. - Total stockholders' equity stood at $3.1 billion, with long-term debt of $1.5 billion [12]. - Cash generated from operating activities was $870 million, with free cash flow of $540 million [13]. Future Outlook - The company raised its outlook for fiscal 2024, projecting sales growth of 1.5-2% and gross margin expansion of at least 220 basis points [15][16]. - Operating income is expected to grow in the mid to high 60% range compared to the previous year's adjusted operating income of $606 million [17]. - The fiscal fourth quarter gross margin is anticipated to be similar year over year, excluding the impact of soft sales due to the absence of the 53rd week [18].