Gap, the popular apparel company, exceeded earnings expectations and raised its profit margin outlook after reporting better-than-expected results at its largest brand, Old Navy. The company’s fiscal second-quarter results were released earlier than planned after Gap “inadvertently” posted them to its website and then removed them, as stated by a Gap spokesperson to CNBC.
A Gap spokesperson clarified the situation, stating that “as soon as the error was caught, we notified the NYSE and trading of our stock was halted temporarily.” The results were posted “as a result of an administrative error.” Gap’s stock was halted just before 10 a.m. ET and the company later released its quarterly results at 11:12 a.m. ET. Following the release, shares rose more than 2% after being halted for much of the morning.
The company reported earnings per share of 54 cents, surpassing the 40 cents expected by analysts surveyed by LSEG. Additionally, Gap’s revenue reached $3.72 billion, higher than the $3.63 billion expected. The company’s net income for the three-month period that ended on August 3 nearly doubled from the year-ago period, with earnings of $206 million, or 54 cents per share, compared to $117 million, or 32 cents per share, a year earlier. Sales also rose to $3.72 billion, representing a 5% increase from $3.55 billion in the prior-year period.
Gap now anticipates its gross margin for the full year to be 2 percentage points higher than the initially forecasted uptick of at least 1.5 percentage points. The company also expects its operating income to grow by approximately 50%, compared to the previous anticipation of slightly more than 40%.
Under the leadership of CEO Richard Dickson, who previously worked at Mattel, Gap has been focused on turning around its business, reversing a sales slump, and regaining cultural relevance. Dickson has been credited with reviving the Barbie empire and has brought that same energy to Gap’s brands, including Banana Republic, Old Navy, Athleta, and its namesake banner. The company has seen improvements in sales, relevance, profits, and its balance sheet under Dickson’s guidance. By the end of the quarter, Gap had $2.1 billion in cash, cash equivalents, and short-term investments, a 59% increase compared to the previous year.
While Gap’s second-quarter results did not exceed expectations, they mark a solid improvement from where the company stood a year ago. Dickson emphasized the company’s strategic priorities, including maintaining financial and operational rigor, which has become integral to Gap’s operations. He highlighted the importance of reinforcing better processes and cultural accountability within the organization.
Gap’s efforts to reinvigorate its brands have been paying off, with a focus on trend-right products, better storytelling, and innovative media mix. Dickson expressed pride in the brand’s portfolio work and its growing cultural relevance. During the quarter, Gap reported a 3% increase in comparable sales, in line with analysts’ expectations. The company’s gross margin also exceeded forecasts at 42.6%, ahead of the 40.8% expected by analysts.
Brand Performance
Old Navy, Gap’s largest brand, experienced a sales rise of 8% to $2.1 billion, with comparable sales up 5%, surpassing analysts’ expectations. The company has been working on enhancing its assortment and ensuring that its value offering is not only cost-effective but also fashionable. Dickson noted the success of the brand’s reinvigoration strategy, particularly in attracting customers across all income brackets.
Gap’s namesake banner reported a 1% revenue increase to $766 million, with comparable sales up 3%. While slightly below analysts’ expectations, Dickson credited the efforts to bring cultural relevance back to the company for the growth in sales.
Banana Republic, Gap’s elevated work-wear line, saw flat revenue and comparable sales in the second quarter compared to the previous year. The company acknowledged the need to improve pricing and assortment to enhance the brand’s performance. Dickson highlighted the focus on merchandising strategies, product depth in-store, and fit improvements to address challenges in the women’s space.
Athleta, Gap’s athleisure brand, faced a 1% sales decline to $388 million, with comparable sales down 4%. However, the company expects Athleta to return to positive comparable sales growth for the remainder of the year. Under the leadership of CEO Chris Blakeslee, Athleta has been working on improving its assortment and generating excitement through product drops and collaborations with athletes.
In conclusion, Gap’s strong second-quarter performance reflects the company’s dedication to strategic priorities, financial and operational rigor, and brand revitalization efforts. With a focus on trend-right products, better storytelling, and cultural relevance, Gap has seen improvements across its brands, particularly at Old Navy. As the company continues to navigate changing consumer preferences and market dynamics, Gap remains committed to delivering value and innovation to its customers.
