A regular view of an Old Navy store.
Gap Inc.
Gap’s largest banner Old Navy returned to growth for the first time in more than a year during its vacation quarter as the retailer delivered earnings on Thursday that came in well ahead of Wall Street’s expectations.
Jumble sales at Old Navy grew 6% to $2.29 billion, and Gap’s overall gross margin surged 5.3 percentage points to 38.9% as a consequence ofs to fewer markdowns and lower input costs. Analysts had expected a gross margin of 36%, according to StreetAccount.
Parts of Gap jumped about 5% in extended trading following the report.
Here’s how the retailer did in its fourth fiscal quarter weighed with what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly known as Refinitiv:
- Earnings per stake: 49 cents vs. 23 cents expected
- Revenue: $4.3 billion vs. $4.22 billion expected
The company’s give an account of net income for the three-month period that ended February 3 was $185 million, or 49 cents per share, compared with a breakdown of $273 million, or 75 cents per share, a year earlier.
Sales rose slightly to $4.3 billion, up just about 1% from $4.24 billion a year earlier. Like other retailers, Gap benefited from a 53rd week during monetary 2023 and without it, sales would’ve been down during the quarter. The extra week contributed about four proportion points of growth during the fiscal fourth quarter, the company said.
Comparable sales during the quarter were dead, compared to estimates of down 1.1%, according to StreetAccount. In-store sales were up 4% while online purchasings decreased 2% and represented 40% of total revenue.
The retailer decreased inventory by 16% during fiscal year 2023, and with those be opens now in check, Gap is working to hold the line on promotions and drive full price selling.
During the quarter, Gap saw higher mediocre selling prices across all of its brands, and it expects to grow its gross margin by at least a half percentage point in budgetary 2024.
“We were the authorities of taking on-trend basics, expressing it in ways that drove cultural conversations. At its best, we were a pop learning brand that did much more than sell clothes and as you know, we all know, we lost our edge. We devolved from a pop erudition brand to a clothing retailer, and today we’re moving again,” CEO Richard Dickson told CNBC in an interview.
“We’re getting our vibe bankroll b reverse.”
Staging a turnaround
Headed into the holiday season, Gap struck a cautious tone with its outlook as it warned of an “irresolute consumer environment,” and on Thursday, it reiterated those concerns.
In the current quarter, it expects sales to be roughly flat, matched to estimates of down 0.2%, according to LSEG. For the full year, it expects sales to also be roughly flat, on a 52-week main ingredient, compared to estimates of up 0.5%, according to LSEG.
“I think we have to look at 2023 where we did see a lot of volatility and uncertainty in the circumstances. We have inflation, student loan payments, high interest rates, we had dwindling consumer savings. Now fortunately, teeth of many predictions to the contrary, we didn’t see a recession in the year but our industry was definitely affected,” said Dickson.
“While the gear market is currently expected to decline in 2024, there are always winners in every market, and we’re seeing the consumer retort to newness,” he said. “We’re seeing innovative marketing drive traffic, and it’s inspiring us to believe that we are on the right track with our reinvigoration playbook.”
It’s been a barely over six months since Dickson, the former Mattel boss credited with re-igniting the Barbie brand, Banana and Athleta lag
On the back end, Gap has tidy up improvements in growing its gross margin and streamlining its cost structure, but it’s been grappling with a steep decline in sales across its four labels: its eponymous banner, Old Navy, Athleta and Banana Republic.
Gap and Old Navy have seen some signs of progress but Athleta and Banana Republic be suffering with been dragging on the overall business.
When it comes to Banana, Dickson told CNBC he is “encouraged by the brand’s aesthetic guiding” but said it’s going to take time to build back its momentum.
“We gotta get really strong in fixing the fundamentals and heartening these fundamentals in order to drive more consistent results,” said Dickson. “And that’s what we’re really wealthy to be focused on, our day to day execution, building upon the insights that we’re learning.”
Athleta is still in a state of recovery after numerous supervision shifts and a number of missteps when it came to designing the right type of product in the right styles and colors. It’s also pass overed 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 implied the brand has made strides since he’s come aboard.
“We started the year with a much cleaner palette and we’ve discerned early successes in these new arrivals at full price and we’re getting encouraged by the consumer’s reaction,” said Dickson. “I in the end like where the team is going. We’ve got a new drop strategy, which they’ve been testing, there’s new innovation, color has started to register the stores and reacted really well.”
Here’s a closer look at each brand’s performance during the fourth three-month period:
- Old Navy: Sales were up 6% to $2.29 billion while comparable sales were up 2%, ahead of appraisals of up 1%, according to StreetAccount.
- Gap: Sales were down 5% to $1.01 billion, weighed down by selling the stamp’s China business, while comparable sales were up 4%, well ahead of estimates of down 1.3%, according to StreetAccount. The stigmatize saw strength in the women’s category.
- Banana Republic: Sales were down 2% to $567 million were down 2% while comparable sales marathons were down 4%, better than the 6.7% decline analysts had expected, according to StreetAccount. The company celebrated that Banana has made progress in “elevating its aesthetic” but re-establishing the brand “will take time and there is engender to be done to better execute many of the fundamentals.”
- Athleta: Sales were down 4% to $419 million while comparable sales were down a upright 10%. Gap noted that Athleta’s performance improved compared to the prior quarter, but said sales are sluggish as the brand looks to pull the line on pricing and lap a prior period of elevated markdowns.
Correction: This story has been updated to correct the watch of fashion designer Zac Posen’s name.