Gap shares pop as company's holiday earnings blow past estimates, Old Navy returns to growth

Original Article:

Source: Link

In this article GPS Follow your favorite stocks CREATE FREE ACCOUNT A general view of an Old Navy store. Gap Inc. Gap's largest banner Old Navy returned to growth for the first time in more than a year during its holiday quarter as the retailer delivered earnings on Thursday that came in well ahead of Wall Street's expectations. Sales at Old Navy grew 6% to $2.29 billion, and Gap's overall gross margin surged 5.3 percentage points to 38.9% thanks to fewer markdowns and lower input costs. Analysts had expected a gross margin of 36%, according to StreetAccount. Shares of Gap jumped about 9% in extended trading following the report. Here's how the retailer did in its fourth fiscal quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly known as Refinitiv: Earnings per share: 49 cents vs. 23 cents expected Revenue: $4.3 billion vs. $4.22 billion expected The company's reported net income for the three-month period that ended February 3 was $185 million, or 49 cents per share, compared with a loss of $273 million, or 75 cents per share, a year earlier. Sales rose slightly to $4.3 billion, up about 1% from $4.24 billion a year earlier. Like other retailers, Gap benefited from a 53rd week during fiscal 2023 and without it, sales would've been down during the quarter. The extra week contributed about four percentage points of growth during the fiscal fourth quarter, the company said. Comparable sales during the quarter were flat, compared to estimates of down 1.1%, according to StreetAccount. In-store sales were up 4% while online sales decreased 2% and represented 40% of total revenue. The retailer decreased inventory by 16% during fiscal year 2023, and with those levels now in check, Gap is working to hold the line on promotions and drive full price selling. During the quarter, Gap saw higher average selling prices across all of its brands, and it expects to grow its gross margin by at least a half percentage point in fiscal 2024. "We were the authorities of taking on-trend basics, expressing it in ways that drove cultural conversations. At its best, we were a pop culture brand that did much more than sell clothes and as you know, we all know, we lost our edge. We devolved from a pop culture brand to a clothing retailer, and today we're moving again," CEO Richard Dickson told CNBC in an interview. "We're getting our vibe back." Staging a turnaround Headed into the holiday season, Gap struck a cautious tone with its outlook as it warned of an "uncertain consumer environment," and on Thursday, it reiterated those concerns. In the current quarter, it expects sales to be roughly flat, compared to estimates of down 0.2%, according to LSEG. For the full year, it expects sales to also be roughly flat, on a 52-week basis, compared to estimates of up 0.5%, according to LSEG. "I think we have to look at 2023 where we did see a lot of volatility and uncertainty in the environment. We have inflation, student loan payments, high interest rates, we had dwindling consumer savings. Now fortunately, despite many predictions to the contrary, we didn't see a recession in the year but our industry was definitely affected," said Dickson. "While the apparel market is currently expected to decline in 2024, there are always winners in every market, and we're seeing the consumer react to newness," he said. "We're seeing innovative marketing drive traffic, and it's inspiring us to believe that we are on the right track with our reinvigoration playbook." It's been a little over six months since Dickson, the former Mattel boss credited with re-igniting the Barbie brand, took over as Gap's chief executive, and in that time, he's focused on breathing relevancy back into the retailer's legacy brands and getting them back to growth. Last month, Gap announced it had tapped fashion designer Zac Posen to be its creative director and Old Navy's chief creative officer. Given its size and contributions to revenue, Gap cannot succeed if Old Navy isn't winning, and for more than a year, sales have been down even at a time when consumers are hungry for bargains and affordable options. Posen, who got his start designing couture gowns and specializes in women's dresses, is a key hire to Dickson's executive team. He helps fill in the gaps when it comes to design and apparel, which are areas where Dickson lacks expertise as he's spent the majority of his career at a toy company. He'll also play a key role in reigniting cultural relevance across Gap, said Dickson. "His creative expertise, and his clarity on culture, you know, they've consistently evolved American fashion, making him a great fit for the company as we look to energize our culture of creativity and we look to reinvigorate these storied brands," said Dickson. "His role as chief creative officer at Old Navy is really to harmonize, orchestrate and dial up the storytelling across product and marketing." Prior to Posen's appointment, Dickson hired Eric Chan, the former CFO of the LA Clippers, to be Gap's chief business and strategy officer. He also hired his former colleague Amy Thompson, Mattel's former chief people officer, to take on the same role at Gap. Banana and Athleta lag