Gap Inc., the parent company of popular clothing retailer Gap, has reported better-than-expected holiday earnings, leading to a surge in shares. The company’s largest banner, Old Navy, experienced growth for the first time in over a year during the holiday quarter. Sales at Old Navy increased by 6% to $2.29 billion, contributing to Gap’s overall gross margin surge of 5.3 percentage points to 38.9%. This growth was attributed to fewer markdowns and lower input costs.
Gap’s earnings per share for the quarter were 49 cents, surpassing Wall Street’s expectations of 23 cents per share. The company’s reported net income for the period was $185 million, compared to a loss of $273 million in the previous year. Despite a slight increase in sales to $4.3 billion, Gap acknowledged that sales would have been down without the additional 53rd week during fiscal 2023.
While comparable sales remained flat during the quarter, in-store sales saw a 4% increase while online sales decreased by 2%, accounting for 40% of total revenue. The retailer aims to reduce inventory by 16% in fiscal year 2024 and intends to focus on driving full price selling and minimizing promotions.
CEO Richard Dickson highlighted Gap’s efforts to regain its cultural relevance and revitalize its legacy brands. With the appointment of fashion designer Zac Posen as creative director and Old Navy’s chief creative officer, the company aims to boost sales at Old Navy, which has struggled in recent years. Posen’s expertise in design and apparel will contribute to Gap’s efforts to reignite cultural relevance across its brands.
Despite positive strides made by Gap and Old Navy, Banana Republic and Athleta continue to face challenges. Banana Republic experienced a decline in sales and comparable sales, although the brand’s aesthetic direction showed promise. Athleta is still in recovery mode after leadership shifts and design missteps. The company hopes that the appointment of CEO Chris Blakeslee will help steer Athleta in the right direction.
Gap expects sales to remain flat for the current quarter and the full year, citing an uncertain consumer environment. However, CEO Richard Dickson remains optimistic, stating that the company is seeing consumer reactions to newness and innovative marketing. Gap plans to focus on day-to-day execution and strengthening its fundamentals to drive consistent results.
Overall, Gap’s holiday earnings have exceeded expectations, indicating a positive turnaround for the company. With a renewed focus on cultural relevance and revitalizing its brands, Gap aims to maintain its growth trajectory and overcome challenges in the apparel market.
