Gap (GPS) stock jumps 12% on better inventory management; Reactions mixed

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(Updated - May 26, 2023 5:02 AM EDT)

Gap (NYSE: GPS) shares surged almost 12% in pre-market after the clothing retailer reported better-than-expected Q1 results.

Gap reported a surprising profit of $0.01 per share to beat the consensus that was looking for a loss per share of $0.15. Revenue fell 6% year-over-year to $3.28 billion, compared to the consensus estimate of $3.29B.

Comparable sales fell 3%. Store sales were down 4% year-over-year, while online sales fell 9% and represented 37% of total net sales. Gap said inventory was down 27% exiting the quarter.

"As we look to the remainder of fiscal 2023, we believe we remain well positioned to drive continued margin expansion and improved cash flow relative to last year despite what we know continues to be an uncertain macro and consumer environment," said CFO Katrina O'Connell.

The company expects Q2 net sales to decrease in the mid to high-single-digit range year-over-year. Gap continues to expect fiscal 2023 net sales to decline in the low to mid-single-digit range.

Goldman Sachs analyst Brooke Roach reiterated a Buy rating and a $14 per share price target.

"We step way from 1Q results with renewed optimism for the stock path for GPS from here, with the quarter delivering against several key areas of the bull thesis," Roach wrote to clients.

Bank of America analyst Lorraine Hutchinson is much more cautious on Underperform-rated GPS stock as she cut the price target by $1 to $8.50.

"We are encouraged by prudent inventory positioning and cost reductions but expect the persistent sales declines to inhibit an outsized earnings recovery and reiterate our Underperform," Hutchinson said.

By Davit Kirakosyan and Senad Karaahmetovic

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