Hurricanes and unseasonably warm weather hit sales at Gap during its fiscal third quarter, but the apparel company still posted better-than-expected results, leading it to raise its annual guidance for a third time this year.
Gap, which runs Old Navy, Banana Republic, Athleta and its namesake banner, is now expecting fiscal 2024 sales to be up between 1.5% and 2%, compared with previous guidance of “up slightly.” That’s ahead of the 0.4% growth that LSEG analysts had expected, and bodes well for the all-important holiday shopping season, which is now underway.
The company is also anticipating gross margins and operating income will grow more than it previously expected.
Shares surged about 13% in extended trading.
Here’s how the nation’s largest specialty apparel retailer performed compared with what Wall Street was anticipating, based on 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-month period that 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 affected sales by about 1 percentage point during the quarter, while storms and hurricanes led overall store sales to fall by 2%, CEO Richard Dickson told CNBC in an interview.
“We had unusual circumstances, hurricanes, storms that led to almost 180 closures at the peak of the impact,” said Dickson, adding the storms affected Old Navy, Gap’s largest brand by revenue, the most.
As soon as the weather turned around, sales “rebounded” and the holiday shopping season is off to a “strong start” so far, said Dickson.
“We are energized about the holiday. 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’ve got stronger brand identities and we’re more practiced in our playbook that we talk a lot about, driving better product, better pricing, more relevance, better consumer experience and excellence in execution.”
Since Dickson took the helm of Gap a little over a year ago, he’s worked to turn around the business after years of declines. Under his direction, the company has leaned into nostalgic marketing and celebrity partnerships to reclaim cultural relevance. Sales have grown for the last four quarters in a row, but the company is still smaller than it once was, and critics say it needs to do more to fix its product assortment and drive full-price selling.
Here’s a closer look at each brand’s performance:
Old Navy: Gap said sales at its largest brand grew 1% to $2.2 billion, while comparable sales were flat, shy of the 0.9% growth that analysts had expected, according to StreetAccount. Old Navy’s kids category was particularly affected by the warmer weather, said Dickson.
Gap: Gap’s eponymous banner grew 1% to $899 million during the quarter, while comparable sales were up 3% — better than the 2.3% growth Wall Street expected, according to StreetAccount. The brand has seen four straight quarters of positive comparable sales and is benefiting from better marketing and product, the company said.
Banana Republic: The trendy workwear line grew sales 2% to $469 million while comparable sales fell 1%, a bit worse than the 0.8% drop that StreetAccount had expected. The brand has worked to turn around its men’s business, which drove results during the quarter. Overall, it is still focused “on fixing the fundamentals,” the company said.
Athleta: The athleisure arm of Gap’s empire grew sales by 4% to $290 million while comparable sales were up 5%. The results weren’t comparable to estimates. In the year-ago period, comparable sales were down 19% at Athleta. Under its new CEO, former Alo Yoga boss Chris Blakeslee, the brand has managed to turn things around.