Is Gap Inc. stock growth enough against S&P 500's surge?

In the United States, Gap Inc. has experienced a challenging period over the past few years, witnessing a significant decline in sales momentum. This downturn is evident in its revenue figures, which dropped from $16.7 billion in 2021 to $14.9 billion in 2023, reflecting an 11% decrease. To address this issue, the company undertook a series of strategic initiatives, including key executive appointments, such as Richard Dickson as CEO, aimed at rejuvenating its sales approach and overall profitability. These measures focused on cost-cutting and reducing promotional activities, which collectively contributed to a positive shift in company performance. The company's recent quarterly results for the first nine months of FY 2024 demonstrated this turnaround, with revenues increasing by 3% year-over-year, reaching $11 billion. Corresponding gross profits also improved, leading to an enhanced profitability figure of $1.70 per share, a marked increase from $0.86 per share in the same period the previous year. This improvement is attributed largely to Gap's reduced reliance on heavy promotions, aligning with the broader strategic vision of the company's leadership. The company is optimistic about the future, forecasting revenues of $15.1 billion for FY 2024, reflecting an anticipated growth of 1.5% year-over-year. Segment performance within the company reflects a mixed but overall positive picture. Notably, Old Navy, which represents over half of Gap's total revenues, had unchanged comparable sales compared to the previous year. Meanwhile, the Gap brand reported a 3% increase in comparable sales, and Athleta achieved a commendable 5% growth in Q3, which was a marked improvement from the 19% decline noted in Q3 2023. Though Banana Republic saw a slight decline in comparable sales of 1%, this was an improvement over last year's 8% drop. These trends indicate a gradual recovery driven by the company's core brands, with Banana Republic and Athleta collectively contributing less than 20% to the overall revenue. Despite the challenges, the company has expressed optimism regarding its future performance. For FY 2024, Gap projects sales growth between 1.5% and 2.0%, a slight enhancement from previous estimates. Furthermore, the company foresees a significant mid-to-high 60% growth range for its operating income. The management remains dedicated to optimizing the performance of its primary brands, Old Navy and Gap, moving forward. The recent closure of underperforming stores has contributed to this expected growth, signifying a commitment to strategic transformation and reflection of a more robust sales approach as consumer confidence begins to recover from pandemic lows, albeit still below pre-Covid levels.