Gap CEO says holidays are off to a ‘strong’ start, he is monitoring potential tariffs

Holiday shoppers are falling into the Gap (GAP) early.

“Our holiday season is off to a strong start,” Gap CEO Richard Dickson told Yahoo Finance on Thursday. “It gives us the confidence to raise our expectations for the year in sales, gross margin, and operating income growth.”

Dickson’s comments follow another quarterly earnings thumping. The relatively new CEO is running his playbook of improved marketing, stylish clothes that fit well, and better inventory management.

Shares popped 15% in premarket trading on Friday.

Third quarter sales at Old Navy and Banana Republic did, however, come in light versus estimates. A warmer-than-expected winter has been pressing sales of sweaters and jackets industrywide.

Gap’s results and guidance raise are likely to support the turnaround narrative that has lifted the stock about 16% over the past year ahead of the results.

“Overall, 3Q demonstrates consistency in the biz and highlights how Gap is evolving into a better operator, giving us more confidence in sales growth and margin expansion in fiscal year 2025,” Citi analyst Paul Lejuez said in a client note.

Lejuez reiterated an Outperform rating on Gap shares.

Of the 15 sell-side analysts that cover Gap, the average price target is $25.59, according to Yahoo Finance data — a 22% upside from current levels.

One wild card in the Gap investment thesis is the potential new tariffs from the incoming Trump administration.

Read more: How do tariffs work, and who really pays them?

Dickson noted only about 10% of Gap’s products are sourced from China, but the issue remains a key one that he’s watching, as it could broadly impact the apparel industry.

“Look, if (tariffs do) happen, it would create macroeconomic implications, and it would likely be in the form of additional inflationary pressures on consumers. But it’s also important to note we have increased flexibility to continue to evolve our supply chain, and “We’ll ensure we’re in the strongest possible position as trends unfold,” Dickson explained.

• Net sales: +2% year over year to $3.8 billion vs. $3.81 billion estimate (guidance: up slightly)

• Comparable sales:

  • Old Navy: unchanged compared to +1% last year, vs. +1.3% estimate

  • Banana Republic: -1% compared to -8% last year, vs. -0.4% estimate

  • Gap: +3% compared to -1% last year, vs. +2.4% estimate

  • Athlete: +5% compared to -19% last year, vs. +3.7% estimate

• Gross margin: 42.7% compared to 41.3% last year, vs. 42.1% estimate

• Diluted EPS: $0.72 vs. $0.58 estimate

Story Continues