The Gap Inc.'s shares soared Friday after the retailer reported solid gains in sales for October and gave an upbeat outlook for its third quarter.
Investors welcomed the news following an unexpected drop in sales in September that threatened to stall the momentum the company had enjoyed since last year. The San Francisco-company owns Gap, Banana Republic, Old Navy, Piperlime, Athleta and Intermix brands.
Gap said late Thursday that its revenue from stores open at least a year increased 4 percent in October, with gains in each of its brands. This far exceeded market expectations of a 0.1 percent increase for the month, according to Thomson Reuters. The figure is considered a key indicator of financial performance because it strips away the impact of recently opened or closed stores.
The company also said it expects earnings per share for the third quarter to be in the range of 70 cents to 71 cents. That's above the 66 cents per share that analysts polled by FactSet had previously forecast.
Gap is expected to report its final third-quarter results Nov. 21.
Stifel analyst Richard Jaffe said the strong finish to the quarter bodes well for the holiday season. The analyst said that Gap's third-quarter earnings improvement will likely be driven by tight expense control as promotions hurt its profit margins.
But he said the company's inventory is in a good position and its offerings appear to be in sync with current trends, which should help sales improve in the long run. He reiterated a "Buy" rating and a $48 price target.
Shares of Gap increased 8 percent to $40.80 by midmorning Thursday, far outpacing broader market gains.
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Original headline: Gap shares soar on sales, outlook
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