The earnings upside came from across-the-board outperformance, as sales, gross margin, and operating expenses all came in better than expected, said the analyst.
Sales increased across channels, with online up 5% in the quarter and store sales up 1% Y/Y.
He added that the timing of franchise sales and a pull-forward of demand from an ON holiday sales event in October also benefited the topline for the quarter.
Merchandise margins in the third quarter were negatively impacted by higher discounting and inflated commodity price increases, partially offset by lapping higher air freight costs last year.
By brand, ON remained the laggard for the quarter with a 1% comp decline (versus a 9% decrease a year ago), but improved meaningfully from a 15% decline in the prior quarter.
BR led the way with 10% comp growth for the quarter (versus a 28% increase a year ago), improving from 9% growth in the prior quarter.
The company noted that Q4 sales could be down mid-single digits, below the current consensus estimate of roughly flat.
The Gap brand faces a roughly 100-bp headwind as it anniversaries Yeezy Gap sales from a year ago.
Management is also taking a cautious approach to holiday given the uncertain macro backdrop and a competitive promotional environment.
The results mean that each brand showed sequential improvement in an encouraging sign that the organizational turnaround could be taking hold after a run of disappointing results over the past year.
In addition, the company is aggressively managing costs while right-sizing its inventory position, Telsey cited.
The Q4 sales outlook came in below prior expectations as the company continues to plan cautiously in the face of a potentially challenging and promotional holiday season.
Price Action: GPS shares are trading higher by 4.68% at $13.305 on the last check Friday.
