Gap Inc. reported third-quarter profit that exceeded forecasts and a smaller-than-expected drop in comparable sales, showing that chief executive officer Richard Dickson is having early success in improving the company’s performance.
Adjusted earnings of 59 cents a share were triple the average analyst estimate, thanks in part to fewer promotions and better managed inventories. While same-store sales fell for a fourth consecutive quarter, the decline was less than expected as stronger results at Old Navy, which is Gap’s biggest brand, offset weakness at Athleta and Banana Republic.
The shares rose 16 percent at 4:52 p.m. in late New York trading.
“Overall, I feel good about our performance, but there’s continued work to do on the brands,” Dickson said in an interview. He laid out ideas including better marketing and product mix at Banana Republic and a more focused marketing effort toward women at Old Navy.
“We’ve seen a strong on-trend reaction to active and our bottoms business that we intend on building momentum upon,” Dickson said about Old Navy, which had sales that surpassed the rest of the company’s brands combined. “We need to execute with consistency.”
The results are an important step toward stabilising the apparel retailer’s business following years of turbulence that have been marked by abrupt management departures and inventory missteps. While the company briefly experienced a boom during the pandemic, sales have contracted in six of the last eight quarters and shares have lost almost 50 percent of their value in the last two years, underscoring the urgency that Dickson faces to turn the company around.
Comparable sales at Old Navy rose for the first time since 2021, while at the Gap brand they fell slightly. Old Navy was bolstered by a website refresh and a women’s apparel campaign that drove market-share gains, Dickson said.
Banana Republic, meanwhile, posted an 8% same-store sales decline, while at Athleta they fell 19 percent.
At Banana Republic, the company has been working on a repositioning strategy that’s included the launch of a luxury furniture line and a collection with designer Peter Do. “That’s going to take some more time to manifest,” Dickson said. “We’re transitioning from highly transactional to a premium lifestyle brand.”
Athleta, which appointed a new president and CEO in August, remained challenged following misfires on product, marketing and retail execution, Dickson said. “We know that the brand to some extent needs a full reset, but we believe we have long-term momentum,” he added.
Gross margin of 41.3 percent improved from a year ago and was above analysts’ average estimate, reflecting new product sourcing strategies, lower air freight prices, favorable commodities contracts and fewer promotions.
Gap’s results are in line with retailers such as Target Corp. and Macy’s Inc., both of which also reported profitability improvements despite quarterly declines in same-store sales. Other specialty apparel retailers, including Abercrombie & Fitch Co. and American Eagle Outfitters Inc., will report third-quarter results next week.
In a research note, Vital Knowledge analyst Adam Crisafulli said that as the company’s biggest business, Old Navy’s positive comparable sales number “is a big win.” At the same time, “the big margin beat isn’t as surprising as it would have been a few days ago after Target and Macy’s raised the bar.”
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