Shares of Gap (GPS) jumped in early trading after the retailer reported quarterly results, including same-store sales, that beat analysts' expectations, bucking the trend of disappointing results in the retail sector. Gap's performance in the quarter was again helped by Old Navy, a consistent bright spot for the retailer, as well as fewer promotions.

EARNINGS BEAT, GUIDANCE RAISE: After the market close on Thursday, Gap reported second quarter adjusted earnings per share of 58c on revenue of $3.8B, handily beating analysts' estimates calling for EPS of 52c and revenue of $3.77B. Comparable store sales for the quarter were up 1%, compared with a 2% decrease in the year-ago period. Same-store sales at Old Navy were up 5% vs. flat last year, while Gap Global SSS fell 1% vs. a 3% decline last year and Banana Republic SSS dropped 5% vs. a 9% decrease last year. Looking ahead, Gap raised its fiscal 2017 adjusted EPS view to $2.02-$2.10 from $1.95-$2.05, with comp sales still seen flat to up slightly. Net sales for the fiscal year are expected to be slightly below the comp sales range driven by an expected negative impact from foreign currency fluctuations year-over-year, Gap said. "With a third consecutive quarter of comp sales growth, we are seeing our investments in product, customer experience, and brand equity begin to pay off," President and CEO Art Peck said in a statement. On the earnings conference call, Peck called out the Athleta and Old Navy as "growth brands" with "significant runway in front of them." Peck also noted that Old Navy is now the fastest growing apparel brand in the U.S. Additionally, Peck called out Gap's supply chain, noting that the company is reducing the time taken to bring fashion to stores and relying less on promotions. For example, Peck said Athleta now has "more than half of its bottoms business on responsive. And by responsive, I mean back into style in 8 weeks or less."

INDUSTRY PEERS: Gap's upbeat results come amid a disappointing quarter for many retailers on the comp line. Macy's (M) last week reported another quarter of declining comps, though its EPS and revenue were above analysts' estimates. While Macy's backed its guidance for FY17, it forecast Q3 comp sales on an owned plus licensed basis down 2.5% "or worse" and fall season comp sales on an owned plus licensed basis to be down 0.8% to down 2.6%. Kohl's (KSS) also reported earnings last week, with EPS and revenue narrowly beating estimates, though its comp sales declined 0.4% from the year ago period. J.C. Penney (JCP) reported a larger than expected loss for the latest quarter, with its comp sales dropping 1.3%. Another peer, Urban Outfitters (URBN), reported a quarterly earnings beat, though its comp sales declined. "While we are disappointed in our second quarter performance, we have a number of initiatives underway including: speed to customer, international growth, wholesale expansion and digital investments," CEO Richard Hayne said. Retailers have been hurt by the increasing popularity of fast-fashion retailers, as well as an increase in online shopping on sites such as Amazon (AMZN). Nordstrom (JWN) said in June that members of its founding family formed a group to explore the possibility of pursuing a "going private" transaction, but WWD recently said that the retailer is not in negotiations with "anybody" regarding a potential sale.

ANALYST COMMENTARY: Following Gap's "solid" Q2, UBS analyst Michael Binetti acknowledged that he does not see signs of a "sustainable" acceleration in EPS. Binetti, who reiterated his Sell rating and $23 price target on Gap shares, still sees downside risk from gross margin and SG&A pressure in the second half of the year. Jefferies analyst Randal Konik also called Gap's results "solid" in a tough operating environment, calling the retailer's beat "high quality," with upside on comps and gross margin. Konik, who said "don't doubt the strength of Old Navy," reiterated his Buy rating on Gap and $35 price target. JPMorgan analyst Michael Boss, who maintained a Neutral rating and raised his price target to $28 from $27, noted signs of "more stable footing" at Old Navy and "encouraging" underlying signs leading to core Gap product "slowly resonating" with customers.

OTHERS TO WATCH: Additional Gap peers include Abercrombie & Fitch (ANF) and The Buckle (BKE).

PRICE ACTION: Gap is up about 4.5% to $23.68 in early trading.