What Happened?
Shares of clothing and accessories retailer Gap (NYSE: GAP) jumped 8.3% in the afternoon session after stocks rebounded (Nasdaq +2.0%, S&P 500 +1.5%) following a report from The Wall Street Journal stating that the Trump administration's reciprocal tariffs, to be announced on April 2, 2025, would be more narrowly targeted.
The market reaction indicated that investors took that as a sign the economic impact of the tariffs, particularly on inflation and growth, might not be as bad as they initially feared. That's a bit of a relief, which likely gave businesses and analysts some space to rethink their outlooks. Earlier, the administration had hinted at much broader tariffs that could have hit any country placing duties on U.S. imports, so this shift was likely a welcome surprise for the market.
The shares closed the day at $21.67, up 8.1% from previous close.
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What The Market Is Telling Us
Gap’s shares are quite volatile and have had 18 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 4 months ago when the stock gained 17.8% on the news that the company reported strong third-quarter results that blew past analysts' profits and earnings expectations. Top line growth was supported by a 5% increase in comparable sales for the Athleta brand, which rebounded after a period of declining sales. Additionally, the Old Navy brand saw increased demand as cooler weather drove sales.
Moving to the bottom line, margins improved due to increased inventory management and reduced promotional activity, and this helped the company exceed analysts' EBITDA and earnings expectations. Looking ahead, management noted a strong start to the holiday season.
Combined with improved quarterly performance, this allowed the company to raise its full-year sales outlook. Zooming out, this quarter featured many important positives.
Gap is down 8.2% since the beginning of the year, and at $21.67 per share, it is trading 25.4% below its 52-week high of $29.03 from June 2024. Investors who bought $1,000 worth of Gap’s shares 5 years ago would now be looking at an investment worth $2,665.
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