Dive Brief:
- Gap Inc.’s Q1 net sales rose 3.4% year over year to $3.4 billion, with comps up 3%. Sales rose 3% in stores and 5% online, per a financial filing. The company gained market share for the fifth straight quarter, CEO Richard Dickson told analysts Thursday.
- Old Navy net sales rose 5% to $1.9 billion, with comps up 3%; Gap was flat at $689 million, with comps up 3%; Banana Republic net sales rose 2% to $440 million, with comps up 1%; and Athleta net sales rose 2.5% to $329 million, with comps up 5%. Comps hadn’t risen across all of the brands since 2017, per Wells Fargo research.
- Gross margin expanded 410 basis points year over year to 41.2%, and merchandise margin expanded by 340 basis points. The apparel conglomerate swung into the black with $158 million in net income, from last year’s $18 million loss.
Dive Insight:
For a while, Gap Inc. had been watching its fortunes deteriorate, with growth often sliding even at Old Navy. Now, along with operational efficiencies, each brand is embracing its own unique reason for being, and those efforts bore fruit in the first three months of the year.
“While fears of a slowdown had taken hold of the narrative, 1Q was anything but that,” Wells Fargo analysts led by Ike Boruchow said in emailed comments.
Since his arrival last August, Dickson has taken a multi-layered approach to Gap Inc.’s revival. At Old Navy, that involves a value proposition that goes beyond promotions, Dickson told analysts.
“It's not so much about a pricing strategy. It's about pricing communication,” he said. “We love being a highly exciting brand with great value, but we need a balanced promotional strategy. We've been reinforcing value by communicating to customers with much more clarity on price and quality.”
Athleta has untapped potential at a pivotal moment for women’s athleticism, he said. And at Banana Republic the company is “reestablishing this brand to thrive in the premium lifestyle space,” he said, noting a leadership transition with the recent departure of Sandra Stangl as brand chief.
But the brand that has fallen the farthest, and has the most work to do to claw its way back into cultural relevance, is namesake Gap. To that end, the brand has made strides, with Dickson noting buzz around Gap Inc. Creative Director Zac Posen’s custom denim dress worn by actor Da’Vine Joy Randolph at the Met Gala and his white shirtdress designed for actor Anne Hathaway, a version of which sold out within six hours.
The brand aims to be a leader in linen, and its “linen moves” campaign is an example of “taking trend-right product and amplifying it. Turning it into a big idea expressed through compelling in-store merchandising and strong digital execution,” Dickson said.
Several analysts were surprised by such early signs of a turnaround. Evercore ISI analysts led by Michael Binetti said that Gap Inc.’s Q1 performance moves it “one step closer to being considered alongside best in class specialty retailer turnaround stories like [Abercrombie & Fitch].”
“We’re seeing strong signs of innovation and reinvigoration across the brands,” Binetti said in a Thursday research note, adding, “While each brand is in a unique stage of their turnaround, positive comps across all four brands (+international) was far earlier than we expected.”
