Gap’s largest brand, Old Navy, marked a significant achievement in its holiday quarter, returning to growth for the first time in over a year.
The retailer delivered earnings that exceeded Wall Street’s expectations, with sales at Old Navy rising by 6% to $2.29 billion.
Gap’s gross margin also saw a notable surge of 5.3 percentage points to 38.9%, attributed to fewer markdowns and reduced input costs. Analysts, who had anticipated a gross margin of 36%, were pleasantly surprised.
Gap’s shares experienced a positive response, with a roughly 5% increase in extended trading following the earnings report.
In the fourth fiscal quarter, Gap surpassed Wall Street’s expectations across various metrics:
– Earnings per share: 49 cents vs. 23 cents expected
– Revenue: $4.3 billion vs. $4.22 billion expected
The company reported a net income of $185 million, or 49 cents per share, for the quarter, a significant improvement compared to a loss of $273 million, or 75 cents per share, in the same period the previous year.
Sales increased slightly to $4.3 billion, up approximately 1% from the previous year, partly attributed to the inclusion of a 53rd week during fiscal 2023.
Comparable sales remained flat during the quarter, contrary to estimates of a 1.1% decline, with in-store sales showing a 4% increase while online sales dipped by 2%, constituting 40% of total revenue.
Gap also managed to decrease its inventory by 16% during fiscal year 2023, allowing the company to focus on minimizing promotions and emphasizing full-price selling. The retailer aims to continue this momentum into fiscal 2024, with expectations of growing its gross margin by at least half a percentage point.
CEO Richard Dickson expressed confidence in the company’s turnaround efforts, emphasizing a return to Gap’s roots as a cultural brand.
Under Dickson’s leadership, Gap has made strategic hires, including fashion designer Zac Posen as its creative director and Old Navy’s chief creative officer.
However, Gap remains cautious about the uncertain consumer environment and anticipates flat sales in the current quarter and fiscal year.
Despite challenges such as inflation and high-interest rates, Dickson remains optimistic about the company’s ability to go through market dynamics and capitalize on consumer trends.
While Old Navy demonstrated robust growth, Gap, Banana Republic, and Athleta faced varying degrees of challenges. Banana Republic is focused on rebuilding momentum, while Athleta is undergoing a recovery phase after leadership changes and product missteps.
