Have US retailers finally hit the bottom? It is a question at the top of investors’ minds as shares of some of the country’s largest apparel retailers climbed following stronger-than-expected results at Lululemon, as well as an analyst upgrade of venerable brand Gap on Friday.

Lululemon, the maker of leggings and crop tops favoured by the Soul Cycle set, eclipsed Wall Street profit expectations in its second quarter, sending its shares 7 per cent higher to $61.67.

The company, which at one point was valued at nearly $12bn, said profits fell 9 per cent from a year earlier to $48.7m, or 36 cents a share, in the three months to the end of July. Earnings per share beat analysts’ expectations by a penny.

Despite the drop in profits, sales jumped nearly 13 per cent from a year earlier as same-store sales — a key industry metric — increased 7 per cent. The gains were driven by a rise in revenues from its website, which benefited from a warehouse sale during the quarter.

“Lululemon put up very respectable growth in [the] second quarter, especially against what is a crowded landscape and a maturing cycle,” said Michael Lasser, an analyst with UBS. “Strength across geographies and key segments suggests Lululemon’s digital reimaging is gaining traction.”

Gap shares gained 3 per cent to $24.28 after analysts with Citi upgraded their view on the company to “neutral” from “sell”, citing the company’s roughly 4 per cent dividend yield as a key reason to support the stock.

“Concerns of a slowdown at Old Navy now appear more priced in” to the stock, said Citi analyst Paul Lejuez. “And we can’t overlook that Old Navy results have been better than we expected as value continues to win.”

Separately, shares of Victoria’s Secret owner L Brands rose 4 per cent to $37.71 on Friday after the company said same-store sales fell 4 per cent in August, in-line with Wall Street forecasts.

“We like the improvement in Victoria’s Secret comp and merchandise margin and expect same-store sales to continue to improve as we cycle the swim and apparel exit and bralette ramp,” said Susan Anderson, an analyst with FBR Capital Markets. “We believe L Brands’ solid brands continue to resonate well with consumers and expect more normalised results in [the] second half once these pressures ease.”

Overall, apparel retailers in the S&P 500 rose 0.8 per cent on Friday. Shares of Foot Locker climbed 3 per cent on the day to $36.24, Express advanced 3 per cent to $6.55 and Guess gained 1 per cent to $15.71.

The retail sector has found itself vulnerable to a growing list of short sellers who believe a further wave of consolidation is still to come, after bankruptcies in 2017 surpassed last year’s total.

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