Gap has beaten Wall Street expectations for third-quarter comparable sales and profit, helped by strong marketing-driven demand for its Old Navy and Banana Republic brand apparel.
Shares of the company rose about 5% in extended trading on Wall Street last night.
The clothing maker has banked on efforts such as introducing limited-edition products in collaboration with Disney, Netflix's "Stranger Things", and Universal's "Wicked" to drive sales.
Initiatives such as "Better in Denim" featuring global girl group Katseye, and campaigns such as "Feels Like Gap" and "Get Loose with Troye Sivan", helped Gap boost its brand relevance among Gen Z shoppers.
Gap last month announced the launch of an affordable beauty and personal care line for this fall in a bid to diversify beyond apparel.
The company reiterated its forecast for a US tariff impact on its annual operating margin between 100 and 110 basis points.
Gap sources less than 10% of its merchandise from China as of 2024. CEO Richard Dickson had said in May the company expects reliance on China to be less than 3% by the end of 2025.
For the third quarter, comparable sales rose 5%, beating expectations of 3.26% growth, according to data compiled by LSEG.
Comparable sales for Old Navy and namesake Gap brand rose 6% and 7% respectively, while Banana Republic grew 4%.
Meanwhile, comparable sales for Athleta, Gap's athleisure brand, fell 11%, marking its fourth consecutive quarter of decline. It has been narrowing its assortment to focus on items in demand such as women's activewear to turn around the business.
"Athleta continues to be the biggest drag on the company," eMarketer analyst Sky Canaves said, adding that there are no indications of concrete progress on the horizon despite plans for a brand reset.
Gap's quarterly revenue rose 3% to $3.94 billion, narrowly surpassing expectations of $3.91 billion. Adjusted earnings per share of 62 cents beat expectations of 59 cents.
