Gap surges as apparel maker's turnaround strategy starts to pay off
May 31 (Reuters) -Shares of Gap GPS.N climbed nearly 25% at $28.04in premarket trading on Friday after the apparel retailer raised its full-year sales forecast in fresh signs that its turnaround strategy to bring in newer styles is starting to work.
The stock has risen nearly 8% this year, building on the 85% surge it saw in 2023 when it brought in former Mattel MAT.O executive Richard Dickson as its new executive chief to revive its struggling business.
The San Francisco, California-based company now sees annual sales slightly up from last year compared with prior expectations of roughly flat sales.
Gap has tried to improve its business by introducing newer and more fashionable styles across its brands while ramping up marketing efforts to appeal to picky shoppers, who have otherwise scaled back onnon-essential purchases.
The company's eponymous brand achieved 3% comparable sales growth in the first quarter, and the Old Navy and Athleta brands also experienced 3% and 5% increases, respectively.
"Gap currently seems operationally and structurally stronger than it has in many years with Gap brand showing signs of a turnaround for the first time in 10 plus years, Old Navy driving solid results and Athleta turning around faster than anticipated," Citi Research analyst Paul Lejuez said.
The average rating of 20 analysts on Gap is "hold", with a median price target of $23, according to LSEG data.
Gap's median price-to-earnings multiple (P/E) for the next 12 months,a common benchmark for valuing stocks, is 14.66, above the industry median of 12.57.
"Just one quarter into the fiscal year, the company raised its annual outlook, a solid sign that green shoots at the brands are taking root," Telsey Advisory Group analyst Dana Telsey said.
On Wednesday, peer Abercrombie & Fitch ANF.N also raised its annual sales target, betting on trendier styles to drive more demand. Its stock has risen over 100% this year.
Reporting by Granth Vanaik in Bengaluru; Editing by Tasim Zahid
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