Hurricanes and unusually warm weather hurt sales gap In its fiscal third quarter, the apparel company still posted better-than-expected results, leading it to raise its annual guidance for the third time this year.
Gap, which operates Old Navy, Banana Republic, Athleta and its namesake brand, now expects sales to grow 1.5% to 2% in fiscal 2024, compared with previous guidance of “modest growth.” This beat the 0.4% growth expected by LSEG analysts and bodes well for the all-important holiday shopping season currently underway.
The company also expects gross margin and operating income growth to exceed previous expectations.
Shares surged about 13% in after-hours trading.
Here’s how the country’s largest specialty apparel retailer performed compared to Wall Street expectations, according to a survey of analysts by London Stock Exchange Group (LSEG):
- Earnings per share: 72 cents vs. 58 cents expected
- income: US$3.83 billion, expected US$3.81 billion
Gap reported net income of $274 million, or 72 cents a share, for the three months ended Nov. 2, compared with $218 million, or 58 cents a share, a year earlier.
Sales increased to US$3.83 billion, an increase of approximately 2% from US$3.78 billion in the same period last year.
Across Gap’s business, unseasonably warm weather impacted sales by about 1 percentage point in the quarter, while storms and hurricanes caused overall store closures, CEO Richard Dickson told CNBC in an interview. Sales fell 2%.
Dickson said: “We encountered unusual circumstances, such as hurricanes and storms, which at the worst time caused nearly 180 stores to close.” He added that the storm had the greatest impact on Old Navy, Gap’s largest brand by revenue.
Dixon said sales “bounced back” as soon as the weather improved and the holiday shopping season is off to a “strong start” so far.
“We’re energized about this holiday season. Our team is really focused on executing our plan. If we compare to last year, our brand is even more prominent than it was last year,” he said. “We have a stronger brand identity and are more practiced in the playbook we talk about often, driving better products, better pricing, more relevance, better consumer experiences and superior Execution.”
Since Dickerson took the reins of Gap more than a year ago, he has been focused on turning around the company after years of decline. Under his leadership, the company turned to nostalgia marketing and celebrity collaborations to regain cultural relevance. Sales have risen sequentially over the past four quarters, but the company remains smaller than before, critics say More needs to be done to improve its product assortment and drive full-price sales.
Here’s a detailed look at each brand’s performance:
Old Navy: Gap said sales at its largest brand rose 1% to $2.2 billion, while comparable sales were flat, missing analysts’ expectations for 0.9% growth, according to StreetAccount. Dixon said Old Navy’s children’s category is particularly affected by warmer weather.
gap: Gap’s namesake brand grew 1% in the quarter to $899 million, while comparable sales rose 3%, better than Wall Street’s expectations for 2.3% growth, according to StreetAccount. The brand has posted four consecutive quarters of positive comparable sales growth and benefited from better marketing and product, the company said.
Banana Republic: Sales of the fashionable workwear line rose 2% to $469 million, while comparable sales fell 1%, slightly less than StreetAccount’s forecast of a 0.8% decline. The brand has been working to turn around its menswear business, which drove results in the quarter. Overall, the company said it remains focused on “fixing fundamentals.”
athlete: Sales in the Gap empire’s athleisure division rose 4% to $290 million, while comparable sales rose 5%. Results are not comparable to estimates. In the same period last year, Athleta’s comparable sales fell 19%. Under new CEO Chris Blakeslee, a former Alo Yoga boss, the brand has managed to turn things around.
