Gap shares jump 30% to extend months-long bet on new CEO’s revival effort

By Ananya Mariam Rajesh

(Reuters) -Gap shares surged more than 30% on Friday as an upbeat quarter gave a fresh jolt of optimism to investors who have bought aggressively since the company named Barbie-turnaround executive Richard Dickson as its new CEO.

If current gains hold, shares will have nearly doubled since late July after the former Mattel executive was appointed to revive the once sought-after brand.

Gap’s stock rose as much as 33% to hit over a one-and-a-half-year high of $18.14.

The company’s third-quarter earnings release on Thursday showed significant inventory destocking, even as its holiday-season forecast disappointed.

Dickson worked at Mattel for two decades and was responsible for reviving the Barbie brand, which re-entered the cultural zeitgeist in 2023 following the success of the “Barbie” movie.

Investors are pinning their hopes on Dickson’s efforts to bring in trendier clothing at Gap’s Old Navy brand, with Morningstar analyst David Swartz saying the earnings showed “something good happening for the first time in a long time maybe.”

“Gap has been in bad shape for so long that anybody who brings some sort of positive outlook to the company would be good at this point,” Swartz said.

Old Navy’s comparable sales rose 1% in the third quarter, their first increase in 10 quarters, after the brand languished last year due to out-of-sync inventory.

“Old Navy gained market share, an encouraging early proof point that work to improve both product assortment and brand messaging” were driving results, Gap Chief Financial Officer Katrina O’Connell said.

The company, like major retailers Walmart and Target, noted inventory levels have declined from last year’s peak, which had been a significant overhang for several quarters.

However, Gap joined other retailers in sounding a cautious note on spending, heading into the all-important shopping season.

Executives also alluded to a “longer recovery” time for its other brands Banana Republic and Athleta which have seen “product misfires” and weak “retail execution.”

(Reporting by Ananya Mariam Rajesh in Bengaluru; Editing by Shinjini Ganguli and Sriraj Kalluvila)