Gap posted positive comparable sales at all four of its brands on Thursday, leading the apparel giant to raise its full year guidance as CEO Richard Dickson’s turnaround strategy starts to take effect.
The retailer behind Gap, Banana Republic, Athleta and Old Navy blew past earnings estimates and beat on revenue, too.
Here’s how Gap did compared with what Wall Street was anticipating, based on a survey of analysts by LSEG:
- Earnings per share: 41 cents vs. 14 cents expected
- Revenue: $3.39 billion vs. $3.29 billion expected
The company’s reported net income for the three-month period that ended May 4 was $158 million, or 41 cents per share, compared with a loss of $18 million, or 5 cents per share, a year earlier.
Sales rose to $3.39 billion, up about 3% from $3.28 billion a year earlier.
It’s “the first time that all four brands have reflected positive comps in many years. In fact, we were sort of looking for when they had and it was difficult to find,” CEO Richard Dickson told CNBC in an interview.
“We’re feeling very confident about our quarter and it has given us the confidence to raise our guidance for full year 2024, both the outlook for revenue and operating margin … It continues, if you will, to really demonstrate our confidence that our priorities are really taking shape,” he added. “The culture is being energized and we’re delivering what we said we were going to deliver to our shareholders.”
Gap is now expecting net sales to be up “slightly,” compared to its previous forecast of flat. The company is expecting gross margins to grow by at least 1.5 percentage points, compared to earlier guidance of at least a half a percent.
The biggest change to Gap’s forecast is in its operating income outlook. It now expects operating income to be in the mid-40% growth range, compared to previous guidance of low-to-mid teens growth.
Dickson, who took the helm of Gap in late August, is a marketing guru who has been working to reinvigorate the company’s portfolio of brands. His work has focused on brand storytelling and positioning names like Gap and Old Navy back into the center of culture.
Some of that has already started to show up.
Earlier this month, actress Da’Vine Joy Randolph wore a denim ball gown designed by Gap’s new creative director, Zac Posen, to the Met Gala. A few weeks later, Anne Hathaway sported a white Gap shirt dress to a Bulgari party that had also been designed by Posen.
“We were so excited to see [Hathaway’s dress] in the marketplace and also dropped to consumers so that they had an opportunity to buy it,” said Dickson. “We continue to believe again, that the better storytelling through marketing and innovative media is resonating.”
He told CNBC the quarter’s success was driven “by consistency and financial and operational rigor,” adding the company’s average selling prices are back to pre-pandemic levels thanks to leaner inventory levels that are leading to better sell throughs. But with better designs and marketing, consumers are just buying more, too.
Here’s a closer look at each brand’s performance:
- Old Navy: Net sales of $1.9 billion were up 5% compared to last year while comparable sales were up 3%, worse than the 4.9% uptick analysts had expected. When asked about the worse than expected results, Dickson said the brand saw its “highest quarterly comp in three years,” which he considers a win. He noted there was strength in the women’s business and “positive results in active” – a “key category” for the company.
- Banana Republic: Sales of $440 million rose 2% compared to last year. Comparable sales were up 1%, well ahead of estimates of down 1.9%. The growth also comes on top of an 8% decline in the year-ago period.
- Athleta: Sales of $329 million climbed 2% compared to last year. Comparable sales were up 5% after being down a staggering 13% in the year-ago period. Analysts didn’t have expectations for Athleta’s comparable sales.
- Gap: Sales of $689 million were flat compared to last year. Comparable sales were up 3%, in line with estimates. “Gap’s performance was primarily driven by strong marketing and product execution centered around its Linen Moves campaign,” the company said.
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