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Investors are clearly pleased with Gap's (GAP +11.8%) Q3 (Oct) earnings results. The apparel company, which has been in turnaround mode, also raised full year guidance, which bodes well heading into the holiday season. GAP noted that it grew net sales for the fourth consecutive quarter, expanded gross margin, delivered its highest Q3 operating margin in seven years, and gained market share for the seventh consecutive quarter.

• Total comps were +1%, down a bit from +3% in Q2 (Jul), but still decent. Let's start with Old Navy, its largest brand by far. Old Navy comps were flat, but it notched market share gains despite facing weather-related headwinds. Old Navy had meaningful strength in its important men's and women's businesses while its more weather-sensitive kids and baby business slowed mid-quarter due to unseasonably warm weather after a strong back-to-school.
• As soon as the weather cooled, Old Navy saw a pickup in sales, reinforcing its confidence for the holiday selling season. Gap says its Old Navy brand is presenting its merchandising narratives and style better, and its customers are taking notice. It's providing more clarity around pricing and more compelling marketing, promoting great value. Speaking of the holidays. Old Navy should benefit from enhanced store visuals, holiday shops, and an ad campaign starring Jennifer Hudson.
• Gap brand comps were +3%, marking its fourth consecutive quarter of positive comps and the sixth consecutive quarter of market share gains. Gap says its campaigns and collaborations are attracting a new generation to Gap. For example, in Q3, Gap successfully executed the Get Loose campaign, which was rooted in denim and featured Troye Sivan, opening the door to younger consumers.
• Banana Republic was the only brand with a negative comp in Q3 at -1%. Gap is seeking to reestablish the brand in the premium lifestyle space. In Q3, the men's business remained strong while there is still work to be done in women's. BR is moving to evolve its assortment and improve fit. BR expects to enter this holiday season with improved in-stock plans for key basics. Also, BR is shifting its media mix towards more social and influencer marketing.
• Athleta comps were the best of the bunch at +5% in Q3. Athleta has been working hard to improve its product, marketing, and stores. It still has work to do to increase traffic, but its brand communication is beginning to resonate with customers in a more meaningful way.

Overall, this quarter showed that Gap is making progress on its turnaround and it seems to be heading into the holiday season with momentum in each of its brands. Although it sounds like Banana Republic is going to take a bit more time. The stock popped on Q1 earnings in early June but quickly pulled back and has consolidated in the $20-24 area. But this report is providing an opportunity to test the upper limits of this range.