Gap Inc., furthering this year’s pattern of posting improving financial results, on Thursday reported top- and bottom-line gains for the third quarter ended Nov. 2.
“We are really proud of the results. We’ve had consistent net sales gains for the fourth consecutive quarter and we are gaining market share across all our brands,” chief executive officer Richard Dickson told WWD. “Our strategy is working.”
Net income of $274 million, or diluted earnings per share of 72 cents, was an improvement over the $218 million, or 58 cents per share, net profit during the year-ago period.
Operating income rose to $355 million last quarter from $250 million in the year-ago period.
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Net sales of $3.8 billion were up 2 percent compared to last year. Comparable sales rose 1 percent year-over-year.
Dickson also said the team has confidence in how the company will perform going forward, and has decided to raise its 2024 guidance for sales, gross margin and operating income. “This demonstrates the progress we are making in running a fundamentally strong business,” the CEO said.
Net sales are now seen increasing 1.5 percent to 2 percent for the year, versus previous guidance of under 1 percent.
The company is now forecasting 2024 sales gains of 1.5 percent to 2 percent from its previous guidance of under 1 percent. In 2023, Gap Inc. generated $14.9 billion in sales.
Gross margin is seen growing about 220 basis points, versus previous guidance of 200 basis points. At the end of last year, Gap Inc.’s gross margin stood at 38.8 percent.
Operating income is now projected in the 60 percent growth range, versus the previous forecast of a 50 percent growth range.
Wall Street apparently liked the retailer’s third-quarter report and guidance, pushing the stock up 12.8 percent, or $2.82, to $24.85, in after-hours trading. Gap Inc. reported its third quarter after the market closed.
Dickson is clearly upbeat about the near-term future, at least. “We are excited about the holiday season. We have already seen a strong start.”
Products, brand positioning, the pricing architecture and visual identity and marketing are “really resonating,” Dickson said. “Based on the results we are gaining strength as we enter the holiday season. We are confident with our assortments and have already seen a strong start” with holiday campaigns dropping over the last couple of weeks. Gap brand’s “Give Your Gift” campaign has been getting an “incredible response,” Dickson said.
Asked what sold best last quarter, Dickson said activewear showed “great progress” at Old Navy, Gap and Athleta. “We are focused on growing the category, expanding the assortments and innovation.”
Dickson also said denim across the Gap Inc. brands “has really been a strong performer. Sales are accelerating and we’re capturing more market share.” Wider leg and looser fits are particularly strong performers.
Among the observations made during a conference call with retail analysts, the CEO said:
- “Brand invigoration” is showing up in sales and market share gains across all brands and more so at Old Navy and Gap.
- Activewear is a big opportunity for growth, particularly at Old Navy
- Inventory management is disciplined, with levels seen ending the year flat to last year.
- Store refreshes and remodels are moving forward.
- Kids and baby categories had a challenging quarter, impacted by unusual weather, but rebounded as the weather turned.
- Gap brand is “moving again” with trend-right products, big ideas and culturally relevant messaging.
- Banana’s men’s wear is strong, particularly pants, knits and sweaters, but there’s still work to be done on the women’s side.
- Athleta reached “an inflexion point” with the customer file building and “great success” seen in new product particularly in core bottoms and limited drops, though there’s still work to do to increase traffic.
In other Gap Inc. developments, a new Gap store in Manhattan’s Flatiron neighborhood was unveiled Thursday, which Dickson said “amplifies storytelling,” has strong merchandise statements with destination areas for fleece, denim and khakis, as well being adorned with artwork and references to Gap Inc.’s heritage but presented in modern ways.
While most Gap Inc. metrics were positive, sales at stores were down 2 percent due to severe weather causing disruptions, including hurricanes and unseasonably warm weather. Old Navy, which has the most stores of any Gap Inc. brand, was most impacted. Meanwhile, online sales increased 7 percent and currently represent 40 percent of total sales.
Gap Inc.’s portfolio includes Old Navy, the largest division, as well as Gap, Banana Republic, and Athleta.
By division, Old Navy reported that its third-quarter net sales of $2.2 billion were up 1 percent compared to last year. Comparable sales were flat.
Gap brand’s third-quarter net sales of $899 million were up 1 percent compared to last year. Comparable sales were up 3 percent, representing the fourth consecutive quarter of positive comparable sales at the brand. “Gap’s strong product and marketing execution have helped drive continued momentum and consistent results at the brand,” the company said in its statement Thursday.
Banana Republic reported third-quarter net sales of $469 million, up 2 percent compared to last year. Comparable sales were down 1 percent. “The brand saw strength in its men’s business during the quarter and remains focused on fixing the fundamentals,” the company indicated. Banana recently opened a few stores with new aesthetics.
Third-quarter net sales at Athleta reached $290 million, up 4 percent compared to last year. Comparable sales rose 5 percent. “The brand returned to positive comparable sales in the quarter as its new product and marketing are resonating with customers,” the company said. Tests at over 40 Athleta doors are underway.
“Consistent execution of our strategic priorities, including the rigor and repetition we’re applying to our brand reinvigoration playbook, is making us a stronger company and demonstrates our continued progress in unlocking Gap Inc.’s full potential,” Dickson said in his prepared statement.
