Just a few months after appointing a new president and chief executive officer, the Gap surprised observers with financial results showing plenty of reasons to be optimistic.
The San Francisco-based retailer says sales fell 7% to $3.77 billion in the third quarter of its fiscal year, compared to $4.04 billion in the third quarter of 2022, with comparable sales falling 2%. Net income slipped to $218 million, compared to $282 million in 2022. Athleta’s sales fell 18%, Banana Republic’s dropped 11%, and Gap’s fell 15%. At Old Navy, the company’s largest division, sales dipped 1%.
And like many other retailers, the company issued a more conservative outlook for fourth-quarter sales.
As dismal as those declines look, the damage was less than analysts had anticipated, enough to send Gap’s stock price as much as 30% higher.
“We were pleased to see market share gains as well as improvements in both gross margins and operating margins, demonstrating our ability to drive operating and financial discipline,” said Richard Dickson, who joined as president and CEO from Mattel in July, in the earnings report. “This rigor has put the company on stronger financial footing and is enabling us to focus on reinvigorating our portfolio of brands, strengthening our operating platform, and reviving our culture for success.”
“Gap delivered another significant earnings beat as its year of efficiency continues, and Old Navy shows more signs of getting back on track,” writes Mark Altschwager, an analyst who covers the company for Baird. He continues to rate the company as neutral. “Sentiment has shifted quickly as the company returns from depressed earnings. We're encouraged by results.”
“While the numbers from Gap are far from positive, they are at least starting to move in the right direction,” writes Neil Saunders, managing director of GlobalData. “Despite being up against a much tougher prior year comparative, the overall decline and the dips at some of the brands are far more modest than those posted over the past few quarters.”
Saunders was especially cheered by Old Navy’s results, including strength in women’s, kids and baby clothes and gains in activewear. “The brand continues to be buffeted by a more constrained family shopper, which is squeezing sales,” he says, noting “a lot more effort was put into the important back-to-school season, which helped Old Navy to build customer numbers and spend over the period.”
More concerning, he says, is the implosion at Athleta, where sales fell 18%, even as rivals like Lululemon continue to soar. “It underlines how much work the brand must do to reconnect with its customers and differentiate itself.”