Gap Inc., led by sustained momentum from Old Navy and Gap, generated top- and bottom-line increases in the first quarter of this year, exceeding the retailer’s expectations.
Net income for the three months ended May 3 rose to $193 million, or diluted earnings per share of 51 cents, up from $158 million, or 42 cents, a year earlier. Operating income rose to $260 million from $205 million.
Net sales rose 2 percent to $3.5 billion from $3.4 billion a year earlier.
“We have certainly proved through our strategic priorities and execution that we are truly on our way to providing greater shareholder value,” said Richard Dickson, chairman and chief executive officer, in an interview with WWD. “The last quarter is another proof point that our strategy is working, but we are realistic that we are operating in a dynamic environment.”
Gap and Old Navy “are winning in the marketplace, and have gained market share for nine consecutive quarters. We continue to strengthen our balance sheet. With $2 billion in cash, we have a strong financial footing.”
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Investors, who are keeping an eye on the future given the trade war, were still cautious on Gap and shares of the company fell 17.5 percent to $23.05.
For 2025, Gap Inc. is projecting net sales growth of 1 to 2 percent, from the $15.1 billion generated last year. Operating income is seen increasing 8 to 10 percent from last year’s $1.1 billion.
But that outlook does not reflect the potential effect of tariffs, which are currently 30 percent on most imports from China and 10 percent on most imports from other countries.
“If these tariff rates remain, they could result in a gross estimated incremental cost of approximately $250 million to $300 million,” Gap Inc. said. “The company currently has strategies to mitigate more than half of that amount. After considering these mitigation strategies, the company estimates a remaining net impact of about $100 million to $150 million to fiscal 2025 operating income, primarily weighted to the back half of the year. There is minimal impact expected to the second quarter fiscal 2025 gross margin.”
Dickson told WWD that he currently does not expect much tariff impact on prices.
Through its 56-year history, Dickson said, “Gap Inc. has gone through lots of peaks and lots of challenges, but we are proving over last couple of years that we’ve got incredible opportunity to unlock value.”
By brand, Old Navy last quarter generated net sales of $2 billion, which were up 3 percent. Comparable sales gained 3 percent.
Gap brand reported that its first-quarter net sales of $724 million were up 5 percent. Comp sales also rose a very respectable 5 percent.
Banana Republic is improving but is not as far into its turnaround as Old Navy and Gap. Banana’s first-quarter net sales of $428 million were down 3 percent. Comps were flat.
And at Athleta, first-quarter net sales of $308 million were down 6 percent while comparable sales were off 8 percent. Work is being done to reset the brand and improve product and marketing, which the company acknowledged will take time.
Discussing where the healthier financial results are coming from, Dickson said the Gap brand has been fueled by “innovation, product newness and compelling marketing and storytelling.” According to Dickson, Gap continued to execute the brand reinvigoration playbook with “clarity and consistency,” achieving positive comparable sales for the sixth consecutive quarter and market share gains for the eighth consecutive quarter.
Additionally, recent collaborations “have worked to accelerate relevance,” Dickson said, citing tie-ins with Harlem’s Fashion Row, and the Gap Studio collection by Zac Posen. There has been particular strength in denim where Gap has expanded its fit offerings, as well as in fleece, activewear and what the CEO described as “soft essentials.”
Old Navy has been winning in activewear and denim, and has logged nine consecutive quarters of market share gains, Dickson said. He called out the brand’s recent launch of StudioSmooth and this week’s launch of the Old Navy Moves campaign with Lindsay Lohan, Charo and other celebrities. The StudioSmooth fabric is a blend of 82 percent nylon and 18 percent spandex, providing what Old Navy executives describe as “a buttery-soft feel with light compression.” Dresses has also been a strong category.
Regarding Banana Republic, Dickson said, “The flat comp in the quarter is actually great progress. We’ve leaned into the classics, the fits are resonating and men’s is performing really well.” He also said women’s has shown some improved performance. “We’re working on getting better alignment on men’s and women’s.”
Overall, Dickson said Gap Inc. has been successful executing on its “playbook,” which has been centered on delivering “big ideas and big storytelling” to the consumer.
In his prepared statement Thursday, Dickson said, “Gap Inc. delivered strong first-quarter results, exceeding financial expectations and gaining market share for the ninth consecutive quarter. We had positive comp sales for the fifth consecutive quarter, with our two largest brands, Gap and Old Navy, winning in the marketplace, demonstrating the power of our brand reinvigoration playbook. The rigor we’ve embedded across the organization continued to serve us well, driving gross margin and operating margin expansion in the quarter. These results are yet another proof point that our strategy is working. In this highly dynamic environment, we are optimistic yet realistic and remain focused on controlling the controllables as we build our company for long-term growth.”
In other results on the quarter, the company indicated that sales at the brick-and-mortar stores were flat compared to last year. Gap Inc. ended the quarter with about 3,500 store locations in more than 35 countries, of which 2,496 were company operated.
Online sales increased 6 percent compared with a year earlier and represented 39 percent of total net sales.
