A general view of an Old Navy store.
Gap Inc.
Gap’s largest banner Old Navy returned to growth for the primary time in greater than a yr during its holiday quarter because the retailer delivered earnings on Thursday that got here in well ahead of Wall Street’s expectations.
Sales at Old Navy grew 6% to $2.29 billion, and Gap’s overall gross margin surged 5.3 percentage points to 38.9% because of fewer markdowns and lower input costs. Analysts had expected a gross margin of 36%, in keeping with StreetAccount.
Shares of Gap jumped about 5% in prolonged trading following the report.
Here’s how the retailer did in its fourth fiscal quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly often called Refinitiv:
- Earnings per share: 49 cents vs. 23 cents expected
- Revenue: $4.3 billion vs. $4.22 billion expected
The corporate’s reported net income for the three-month period that ended February 3 was $185 million, or 49 cents per share, compared with a lack of $273 million, or 75 cents per share, a yr earlier.
Sales rose barely to $4.3 billion, up about 1% from $4.24 billion a yr earlier. Like other retailers, Gap benefited from a 53rd week during fiscal 2023 and without it, sales would’ve been down through the quarter. The additional week contributed about 4 percentage points of growth through the fiscal fourth quarter, the corporate said.
Comparable sales through the quarter were flat, in comparison with estimates of down 1.1%, in keeping with StreetAccount. In-store sales were up 4% while online sales decreased 2% and represented 40% of total revenue.
The retailer decreased inventory by 16% during fiscal yr 2023, and with those levels now in check, Gap is working to carry the road on promotions and drive full price selling.
Through the quarter, Gap saw higher average selling prices across all of its brands, and it expects to grow its gross margin by at the very least a half percentage point in fiscal 2024.
“We were the authorities of taking on-trend basics, expressing it in ways in which drove cultural conversations. At its best, we were a popular culture brand that did way more than sell clothes and as you realize, everyone knows, we lost our edge. We devolved from a popular culture brand to a clothing retailer, and today we’re moving again,” CEO Richard Dickson told CNBC in an interview.
“We’re getting our vibe back.”
Staging a turnaround
In the present quarter, it expects sales to be roughly flat, in comparison with estimates of down 0.2%, in keeping with LSEG. For the total yr, it expects sales to even be roughly flat, on a 52-week basis, in comparison with estimates of up 0.5%, in keeping with LSEG.
“I believe we have now to have a look at 2023 where we did see plenty of volatility and uncertainty within the environment. We now have inflation, student loan payments, high rates of interest, we had dwindling consumer savings. Now fortunately, despite many predictions on the contrary, we didn’t see a recession within the yr but our industry was definitely affected,” said Dickson.
“While the apparel market is currently expected to say no in 2024, there are at all times winners in every market, and we’re seeing the patron react to newness,” he said. “We’re seeing revolutionary marketing drive traffic, and it’s inspiring us to consider that we’re on the proper track with our reinvigoration playbook.”
It has been a bit of over six months since Dickson, the previous Mattel boss credited with re-igniting the Barbie brand, took over as Gap’s chief executive, and in that point, he’s focused on respiration relevancy back into the retailer’s legacy brands and getting them back to growth.
Last month, Gap announced it had tapped dressmaker Zac Posen to be its creative director and Old Navy’s chief creative officer. Given its size and contributions to revenue, Gap cannot succeed if Old Navy is not winning, and for greater than a yr, sales have been down even at a time when consumers are hungry for bargains and reasonably priced options.
Posen, who got his start designing couture gowns and focuses on women’s dresses, is a key hire to Dickson’s executive team. He helps fill within the gaps on the subject of design and apparel, that are areas where Dickson lacks expertise as he’s spent the vast majority of his profession at a toy company. He’ll also play a key role in reigniting cultural relevance across Gap, said Dickson.
“His creative expertise, and his clarity on culture, you realize, they’ve consistently evolved American fashion, making him an incredible fit for the corporate as we glance to energise our culture of creativity and we glance to reinvigorate these storied brands,” said Dickson. “His role as chief creative officer at Old Navy is de facto to harmonize, orchestrate and dial up the storytelling across product and marketing.”
Prior to Posen’s appointment, Dickson hired Eric Chan, the previous CFO of the LA Clippers, to be Gap’s chief business and strategy officer. He also hired his former colleague Amy Thompson, Mattel’s former chief people officer, to tackle the identical role at Gap.
Banana and Athleta lag
On the back end, Gap has made improvements in growing its gross margin and streamlining its cost structure, but it surely’s been grappling with a steep decline in sales across its 4 brands: its eponymous banner, Old Navy, Athleta and Banana Republic.
Gap and Old Navy have seen some signs of progress but Athleta and Banana Republic have been dragging on the general business.
In relation to Banana, Dickson told CNBC he’s “encouraged by the brand’s aesthetic direction” but said it is going to take time to construct back its momentum.
“We gotta get really strong in fixing the basics and strengthening these fundamentals in an effort to drive more consistent results,” said Dickson. “And that is what we’re really going to be focused on, our everyday execution, constructing upon the insights that we’re learning.”
Athleta continues to be in a state of recovery after quite a few leadership shifts and a variety of missteps when it got here to designing the proper kind of product in the proper styles and colours. It is also missed the mark in its stores and its marketing, said Dickson.
In August, Athleta named former Alo Yoga President Chris Blakeslee its next CEO, and Dickson said the brand has made strides since he’s come aboard.
“We began the yr with a much cleaner palette and we have seen early successes in these recent arrivals at full price and we’re getting encouraged by the patron’s response,” said Dickson. “I actually like where the team goes. We have a recent drop strategy, which they have been testing, there’s recent innovation, color has began to enter the stores and reacted very well.”
Here’s a more in-depth have a look at each brand’s performance through the fourth quarter:
- Old Navy: Sales were up 6% to $2.29 billion while comparable sales were up 2%, ahead of estimates of up 1%, in keeping with StreetAccount.
- Gap: Sales were down 5% to $1.01 billion, weighed down by selling the brand’s China business, while comparable sales were up 4%, well ahead of estimates of down 1.3%, in keeping with StreetAccount. The brand saw strength in the ladies’s category.
- Banana Republic: Sales were down 2% to $567 million were down 2% while comparable sales were down 4%, higher than the 6.7% decline analysts had expected, in keeping with StreetAccount. The corporate noted that Banana has made progress in “elevating its aesthetic” but re-establishing the brand “will take time and there may be work to be done to raised execute lots of the fundamentals.”
- Athleta: Sales were down 4% to $419 million while comparable sales were down a steep 10%. Gap noted that Athleta’s performance improved in comparison with the prior quarter, but said sales are sluggish because the brand looks to carry the road on pricing and lap a previous period of elevated markdowns.
Correction: This story has been updated to correct the spelling of dressmaker Zac Posen’s name.