Gap (GPS) Earnings Q1 2024

Gap posted positive comparable sales across all four brands on Thursday, prompting the apparel giant to raise its full-year guidance as CEO Richard Dickson's turnaround strategy begins to take effect.

The retailer behind Gap, Banana Republic, Athleta and Old Navy beat earnings estimates and also beat revenue.

Here's how Gap fared compared to what Wall Street anticipated, according to a survey of analysts by LSEG:

• Earnings per share: 41 cents vs. 14 cents expected
• Revenue: $3.39 billion vs. $3.29 billion expected

Gap shares rose more than 20% in extended trading Thursday.

The company reported fiscal first-quarter net income of $158 million, or 41 cents per share, compared with a loss of $18 million, or 5 cents per share, in the same period a year earlier.

Sales in the period ended May 4 rose about 3% to $3.39 billion from $3.28 billion a year earlier.

It's “the first time all four brands have reported positive comparisons in many years. In fact, we were looking when they did it and it was hard to find,” CEO Richard Dickson told CNBC in an interview.

“We feel very confident about our quarter and it has given us the confidence to raise our full-year 2024 guidance, both the revenue outlook and the operating margin… It continues, so to speak, to really demonstrate our confidence that our priorities are really taking shape,” he added. “The culture is becoming more dynamic and we are delivering what we said we were going to deliver to our shareholders.”

Gap now expects net sales to increase “slightly,” compared to its previous forecast for them to remain flat. The company expects gross margins to grow at least 1.5 percentage points, compared to previous guidance of at least half a percentage point.

The biggest change to Gap's forecast is in its operating income outlook. It now expects operating income to be in the mid-40% growth range, compared to previous guidance of low to mid-growth.

Dickson, who took the helm of Gap in late August, is a marketing guru who has been working to revitalize the company's portfolio of brands. His work has focused on telling brand stories and positioning names like Gap and Old Navy back at the center of culture.

Some of that has already started to appear.

Earlier this month, Da'Vine actress Joy Randolph wore a denim dress designed by Gap's new creative director, Zac Posen, at the Met Gala in Manhattan. A few weeks later, actress Anne Hathaway wore a white Gap shirt dress to a Bulgari party that was also designed by Posen.

“We were so excited to see [Hathaway’s dress] in the market and also reached consumers so they had the opportunity to purchase it,” Dickson said. “We continue to believe again that the best storytelling through innovative marketing and media is resonating.”

He told CNBC that the quarter's success was driven “by financial and operational consistency and rigor,” adding that the company's average selling prices have returned to pre-pandemic levels thanks to lower inventory levels. that are generating better sales. But with better designs and marketing, consumers are also buying more.

Here's a breakdown of how each of Gap's brands performed during the quarter, compared to Wall Street estimates compiled by FactSet, which revised its estimates after Gap's report:

• Ancient Navy: Net sales of $1.9 billion rose 5% compared to last year, while comparable sales rose 3%, ahead of the 2.3% increase expected under FactSet's revised estimate. Dickson said the brand earned its “biggest quarterly compensation in three years,” a big win for Gap's biggest brand by revenue. He noted that the women's business is strong and that there are “positive active results”, a “key category” for the company.

• Banana Rebublic: Sales of $440 million increased 2% compared to last year. Comparable sales rose 1%, well ahead of the expected 4% decline, according to FactSet's revised estimate. The growth also comes on top of an 8% drop in the same period last year.

• Athlete: Sales of $329 million increased 2% compared to last year. Comparable sales rose 5% after falling a staggering 13% in the same period a year earlier. Analysts had no expectations for Athleta's comparable sales.

• Gap: Sales of $689 million were flat compared to last year. Comparable sales rose 3%, ahead of an expected 2% gain, according to FactSet's revised estimate. “Gap's performance was primarily driven by strong marketing and product execution focused on its Linen Moves campaign,” the company said.