Apparel retailer Gap, Inc. (GPS 29.71, +2.23, +8.1%) is starting to look more like the company it used to be, which is a good thing. The proof is in its comparable sales results, which were positive in the third quarter for the fourth consecutive quarter.
That streak, which has upended a long string of negative comparable sales, has helped Gap's stock advance 32% this year in an environment that has not been kind to many mall-based retailers.
Strikingly, the bulk of the stock's gain has occurred in the last three months, which is as much a testament to the company's turnaround efforts as it is to growing confidence among investors that they can trust the turnaround efforts. In other words, Gap is emerging from the pen of being a show-me story.
There is still more work to do at Gap, yet the 3% increase in third quarter comparable sales reflects a work of encouraging progress. That increase was fueled by a 4% comparable sales increase at Old Navy on top of a 4% increase last year, excluding the effects of a fire at Gap's Fishkill distribution center, and a 1% comparable sales increase for Gap Global versus a 4% decline last year.
Banana Republic was a drag, with comparable sales down 1%. Still, that was better than the 6% decline registered in the year-ago period.
Third quarter net sales were up 1.1% to $3.84 billion. The retailer's operating margin, though, dropped 40 basis points to 9.8% on the back of an increase in marketing and payroll expenses and investments in initiatives to support its balanced growth strategy.
Adjusted earnings were $0.60 per diluted share, unchanged from the year-ago period on a comparable basis, but ahead of analysts' average expectation.
In conjunction with the third quarter report, Gap raised its fiscal 2017 outlook. The retailer expects adjusted earnings per share to be in the range of $2.08 to $2.12, versus prior guidance of $2.02 to $2.10, and comparable sales to be up low-single-digits, versus its prior view of flat to up slightly.
The favorable guidance has helped boost Gap's stock 8% today, but importantly, it has continued to boost investor confidence in the notion that Gap, Inc., is on the right path.