Hurricanes and unusually warm weather affected sales in Gap during its fiscal third quarter, but the apparel company still posted better-than-expected results, prompting 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 fiscal 2024 sales to increase between 1.5% and 2%, compared to previous guidance of “a slight increase.” This is above the 0.4% growth expected by LSEG analysts and bodes well for the important Christmas shopping season, which is already underway.
The company also anticipates that gross margins and operating income will grow more than it previously expected.
Here's how the country's largest specialty apparel retailer performed compared to what Wall Street anticipated, according to a survey of analysts by LSEG:
- Earnings per share: 72 cents vs. 58 cents expected
- Revenue: $3.83 billion vs. $3.81 billion expected
Gap's reported net income for the three months ended Nov. 2 was $274 million, or 72 cents per share, compared with $218 million, or 58 cents per share, a year earlier.
Sales rose to $3.83 billion, up about 2% from $3.78 billion a year earlier.
Across Gap's business, unseasonably warm weather hit sales by about 1 percentage point during the quarter, while storms and hurricanes caused overall store sales to fall 2%, CEO Richard Dickson told CNBC. in an interview.
“We had unusual circumstances, hurricanes, storms that caused almost 180 closures at the peak of the impact,” Dickson said, adding that the storms hit Old Navy, Gap's largest brand by revenue, the most.
As soon as the weather improved, sales “bounced back” and the holiday shopping season is off to a “strong start” so far, Dickson said.
“We are energized by the holidays. Our teams are really focused on executing our plans. If we compare ourselves to where we were last year, our brands are in a much more pronounced place than they were last year,” he said. “We have stronger brand identities and we have more practice in our playbook that we talk a lot about, driving better products, better prices, more relevance, better consumer experience and excellence in execution.”
Since Dickson took the helm of Gap a little more than a year ago, he has worked to turn the business around after years of declines. Under his direction, the company has leaned toward nostalgia marketing and celebrity partnerships to regain cultural relevance. Sales have increased for the last four consecutive quarters, but the company remains smaller than it was before and critics say that needs to do more to improve its product assortment and drive full-price sales.
Here's a closer look at each brand's performance:
Old Navy: Gap said sales of its largest brand grew 1% to $2.2 billion, while comparable sales were flat, below the 0.9% growth analysts had expected, according to StreetAccount. Old Navy's children's category was particularly affected by the warmer weather, Dickson said.
Gap: Gap's namesake brand grew 1% to $899 million during the quarter, while comparable sales rose 3%, better than the 2.3% growth Wall Street was expecting, according to StreetAccount. The brand has experienced four consecutive quarters of positive comparable sales and is benefiting from improved marketing and product, the company said.
Banana Republic: The fashion workwear line increased sales 2% to $469 million, while comparable sales fell 1%, slightly worse than the 0.8% drop StreetAccount expected. The brand has worked to pivot its men's business, which boosted results during the quarter. Overall, it is still focused “on fixing the fundamentals,” the company said.
Athlete: The sports arm of the Gap empire increased sales 4% to $290 million, while comparable sales rose 5%. The results were not comparable to the estimates. In the same period last year, comparable sales decreased 19% at Athleta. Under its new CEO, former Alo Yoga boss Chris Blakeslee, the brand has managed to turn things around.
