A Gap retail store sign on September 20, 2022 in Los Angeles, California.
Allison Dinner | Getty Images
Gap posted a better-than-expected fiscal third quarter on Thursday, however the apparel retailer still appears cautious ahead of the vacation season as it really works to reverse slowdowns at Banana Republic and Athleta.
The corporate, which also runs Old Navy and its namesake banner, far exceeded Wall Street’s estimates for profit and same-store sales, but only reaffirmed its full-year guidance and expects holiday-quarter sales to be flat to barely negative.
Shares of Gap soared greater than 15% in prolonged trading. As of Thursday’s close, they were up about 21% 12 months so far.
Here’s how Gap performed through the quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly often known as Refinitiv:
- Earnings per share: 59 cents, adjusted vs. 19 cents expected
- Revenue: $3.77 billion vs. $3.60 billion expected
The corporate’s reported net income for the three-month period that ended Oct. 28 was $218 million, or 58 cents per share, compared with $282 million, or 77 cents per share, a 12 months earlier. Excluding costs related to its restructuring, Gap reported earnings of 59 cents per share.
Sales dropped to $3.77 billion, down about 7% from $4.04 billion a 12 months earlier.
Gap hasn’t managed to reverse its ongoing revenue slump, but its same-store sales were much better than expected. They dropped only 2%, compared with the 8.7% slowdown that analysts had expected, in accordance with StreetAccount.
For the third quarter in a row, Gap also saw improvements in its gross margin because of lower commodity costs, fewer promotions and a series of cost-cutting initiatives which were underway for several quarters. Those moves include sweeping layoffs that cut greater than 2,000 jobs.
Throughout the quarter, Gap’s gross margin improved by 3.9 percentage points to 41.3%, which got here in ahead of the 38.9% that analysts had anticipated, in accordance with StreetAccount. The corporate said it expects gross margins to proceed to enhance.
The longtime apparel giant has been on a quest to enhance sales and regain the relevancy that when defined the corporate. It recently tapped former Mattel executive Richard Dickson to be its chief executive. Dickson, who was credited with reviving the Barbie franchise during his time on the toy company, plans to make use of his branding prowess to show Gap around and position the corporate back into the mainstream of popular culture.
“Gap Inc. has weathered a whole lot of disruption over the past several years, each external macro aspects, in addition to execution missteps and strategically well intended initiatives have impacted the corporate. All that said, the chance is evident,” Dickson said on an earnings call with analysts, his first as Gap’s CEO. “I actually have conviction that we are able to reinvigorate our portfolio brands, while we lead a creative culture that pulls, retains and develops the perfect talent within the industry. I’m encouraged by the early progress we have made so far, but we now have a protracted technique to go and a whole lot of work to do.”
Gap saw modest improvements at Old Navy and its eponymous banner. But Banana Republic and Athleta have been dragging on the retailer’s overall performance, which is a component of the explanation it only reaffirmed its full-year guidance and offered a tepid forecast for its holiday quarter.
During its fourth quarter, Gap expects sales to be flat to barely negative compared with last 12 months, which is a bit shy of the 0.3% increase that analysts had expected, in accordance with LSEG.
“We now have work to do, I feel, still at Banana and Athleta, as demonstrated by the performance within the quarter,” finance chief Katrina O’Connell told CNBC in an interview. “So our revenue outlook for Q4 shows that difference in brand outcomes as we take into consideration continued strength in Old Navy and Gap but possibly an extended turn at Banana and somewhat bit more work to do to reset Athleta.”
Dickson called Gap’s holiday outlook “balanced” and told analysts it takes into consideration “the uncertain consumer environment.”
Here’s a more in-depth have a look at each brand’s performance:
- Old Navy: Sales on the discount brand got here in at $2.13 billion, accounting for greater than half of Gap’s overall revenue through the quarter. Sales fell 1% compared with last 12 months, while comparable sales rose 1%. The brand saw strength in women’s and children, and an uptick in activewear. Still, it has more work to do to enhance product assortment and develop a pricing strategy that “clearly communicates jaw-dropping value” to win over cash-strapped families, said Dickson.
- Gap: Revenue at Gap’s eponymous banner was $887 million, a 15% drop compared with last 12 months. The brand continues to be reeling from the shutdown of Yeezy Gap and saw comparable sales decline 1%. It saw strength in women’s and baby apparel. Dickson noted Gap has massive brand awareness but has been “far too quiet within the cultural conversation.” He said the corporate must “reignite that dialogue, offering confident, trend-right assortments, priced right and expressed through big ideas and culturally relevant messaging.”
- Banana Republic: Sales at Banana, known for its workwear and going out pieces, fell 11% in comparison with last 12 months to $460 million. Comparable sales dropped 8%. The corporate said the brand is working to accumulate recent, high-value customers and reposition itself as a number one premium retailer after relying heavily on promotions over the previous couple of years. Dickson expects Banana could develop into an enormous player within the wildly popular “quiet luxury space.”
- Athleta: Gap’s activewear brand was the worst performer through the quarter. Sales got here in 18% lower than last 12 months at $279 million, while comparable sales fell a staggering 19%. The corporate continues to be working to enhance Athleta’s product assortment and get back in contact with its core customer. When discussing the brand’s performance, Dickson bluntly called it “disappointing” and said a series of misfires have left it “off course.” Nevertheless, recent changes to marketing strategies have shown promising results.
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