Gap Inc. reported third-quarter profit that beat forecasts and a smaller-than-expected decline in comparable sales. This shows that CEO Richard Dickson is achieving early success in improving company performance.
Adjusted profit of 59 cents per share was three times the average analyst estimate, partly due to fewer promotions and better managed inventory. While same-store sales fell for the fourth straight quarter, the decline was smaller than expected as better results at Old Navy, Gap’s largest brand, offset weakness at Athleta and Banana Republic.
Shares rose 16 percent in late New York trading as of 4:52 p.m.
“Overall I’m happy with our performance, but there’s still a lot of work to do on the brands,” Dickson said in an interview. He offered ideas including better marketing and product mix at Banana Republic and a more female-focused marketing effort at Old Navy.
“We’ve seen a strong, on-trend response to the activewear and our bottoms business, which we plan to continue to grow,” Dickson said of Old Navy, whose sales exceeded those of the company’s other brands combined. “We have to proceed consistently.”
The results are an important step toward stabilizing the apparel retailer’s business after years of turmoil marked by abrupt management departures and inventory misalignments. While the company briefly boomed during the pandemic, sales have declined in six of the past eight quarters and shares have lost nearly 50 percent of their value over the past two years, underscoring the urgency Dickson faces in owning the company renovate.
Comparable sales rose for the first time since 2021 at Old Navy, while they fell slightly at the Gap brand. Old Navy was bolstered by a website update and a women’s apparel campaign that led to market share gains, Dickson said.
Banana Republic, meanwhile, saw same-store sales decline 8%, while Athleta saw them decline 19%.
At Banana Republic, the company has been working on a repositioning strategy that includes launching a luxury furniture line and a collection with designer Peter Do. “It’s going to take some time to manifest itself,” Dickson said. “We are transforming from a highly transactional brand to a premium lifestyle brand.”
Athleta, which named a new president and CEO in August, remained challenged due to failures in product, marketing and retail execution, Dickson said. “We know the brand needs a complete reboot to some extent, but we believe we have long-term momentum,” he added.
Gross margin of 41.3 percent improved year-over-year and exceeded analysts’ average estimate, driven by new product sourcing strategies, lower air freight prices, favorable raw material contracts and fewer promotions.
Gap’s results are consistent with those of 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, Adam Crisafulli, an analyst at Vital Knowledge, said Old Navy’s positive comparable sales numbers were “a big win” as the company’s largest business. At the same time, “the big jump in margins isn’t as surprising as it was a few days ago after Target and Macy’s raised the bar.”
By Olivia Rockeman
Learn more:
Why Vintage Gap is hot and Current Gap is not
Driven partly by nostalgia and partly by the trend for 1990s and Y2K styles, people are turning to products from Gap’s heyday. But those same shoppers aren’t buying what Gap currently has in stores.
