apparel and retail

With Sharper Marketing, Gap Finally Makes Progress With Old Navy

Financial results at Gap Inc. came in better than Wall Street expected. And Richard Dickson, in his first full quarter as president and chief executive officer, was quick to credit better marketing for those gains, citing campaigns that told stronger stories, along with more efficient media strategies.

For the fourth quarter of the fiscal year, sales rose 1% to $4.3 billion, with comparable store sales increasing 4% and ecommerce sales dropping 2%.

At Old Navy, the company’s largest brand, sales climbed 6% to $2.29 billion and rose 2% on a comparable store basis. That marks the second consecutive quarter of gains.

At Gap, sales fell 5% to $1.01 billion. However, those results reflect a significant negative impact on the sales of Gap China. Excluding that transaction, sales would have been up 3% compared to last year.



Banana Republic and Athleta continue losing streaks, with sales down 2% and 4%, respectively.

Net income for the quarter rose to $185 million, compared to a loss of $273 million in the year-ago period.

“We are reasserting Old Navy's authority as the No. 2 apparel brand in the U.S.,” Dickson said in a call webcast for investors, praising brand campaigns starring Natasha (“Poker Face”) Lyonne. “This demonstrates how we take a product and make it a trend by dialing it up in a relevant way through storytelling. Old Navy is reinforcing value by communicating to customers with more clarity on price and quality, both in stores and online, highlighting the brand's value proposition.”

While the company doesn’t reveal marketing budgets by banner, it achieved those sales gains with reduced marketing spending. For the fiscal year, marketing accounted for about 5.9% of sales, down from 6.7%.

“Marketing dollars are continuing to come down year over year, which is a direct function of more innovative medium metrics,” Dickson said. “We're continuing to evaluate our marketing comprehensively as part of the brand reinvigoration work as well as part of media efficiency work.”

Gap has a long way to go to convince doubters, but some see sparks of hope. “Years of mismanagement and intense competition in apparel retail” means the company has little defense against its many competitors, writes David Swartz, an analyst who follows the retailer for Morningstar. “But we are encouraged that Dickson appears to be tackling problems with changes in merchandising, management, and logistics.”

Noting that Old Navy’s gains benefited from an easy comparison to the prior year, he is hopeful about the brand’s market share gains, given the overall weakness in the apparel market.

Separately, Old Navy debuted its new spring campaign, created by the Martin Agency. Long-time fans of the retailer will love the cameo from Magic the Dog, the spokes-pooch from the ‘90s. The commercial is set in a sweet, flower-filled version of Paris, showing off the season’s bare arms and blue skies.

As part of the reinvigoration plan, Gap recently tapped designer Zac Posen as the new creative director of Old Navy. An Old Navy spokesperson says the spring collection does not yet reflect Posen’s input.

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