Hurricanes and unusually warm weather impacted sales gap However, the apparel company still posted better-than-expected results in its fiscal third quarter, leading it to raise its full-year forecast for the third time this year.
Gap, which owns Old Navy, Banana Republic, Athleta and its namesake company, now expects fiscal 2024 revenue to rise between 1.5% and 2%, compared to its previous forecast of “slightly increasing.” That's above the 0.4% growth LSEG analysts had expected and bodes well for the all-important holiday shopping season now underway.
The company also expects gross margins and operating income to grow more than previously expected.
Shares rose about 13% in extended trading.
Here's how the nation's largest specialty apparel retailer performed compared to Wall Street's expectations, based on an LSEG analyst survey:
- Earnings per share: 72 cents versus 58 cents expected
- Revenue: $3.83 billion versus expected $3.81 billion
Gap's reported net income for the three-month period ended Nov. 2 was $274 million, or 72 cents per share, compared with $218 million, or 58 cents per share, a year earlier.
Revenue rose to $3.83 billion, up about 2% from $3.78 billion a year ago.
Across Gap's business, unseasonably warm weather affected sales by about a percentage point during the quarter, while storms and hurricanes caused overall store sales to fall 2%, CEO Richard Dickson said in an interview with CNBC .
“We had unusual circumstances, hurricanes and storms that resulted in nearly 180 closures at the peak of the impact,” Dickson said, adding that Old Navy, Gap's largest brand by sales, was hit hardest by the storms.
Once the weather changed, “sales rebounded” and the holiday shopping season is off to a “strong start” so far, Dickson said.
“We are looking forward to the holidays with great energy. 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 distinct place than last year,” he said. “We have stronger brand identities and are more proficient in our playbook, which we talk about a lot, driving better products, better pricing, more relevance, better customer experience and great execution.”
Since taking the helm at Gap just over a year ago, Dickson has worked to turn the company around after years of decline. Under his leadership, the company has relied on nostalgic marketing and celebrity partnerships to regain cultural relevance. Sales have increased for the last four quarters in a row, but the company is still smaller than it used to be, critics say needs to do more to improve its product range and drive full-price sales.
Here's a closer look at each brand's performance:
Old Navy: Gap said sales of its biggest brand rose 1% to $2.2 billion, while comparable sales were flat, falling short of analysts' expected 0.9% growth, according to StreetAccount. Old Navy's children's category was particularly affected by the warmer weather, Dickson said.
Gap: Gap's namesake banner grew 1% to $899 million during the quarter, while comparable sales rose 3% – better than Wall Street's expected 2.3% growth, according to StreetAccount. The brand posted positive comparable sales for four consecutive quarters and is benefiting from better marketing and product, the company said.
Banana Republic: The trendy workwear line increased sales 2% to $469 million, while comparable sales fell 1%, slightly worse than StreetAccount's expected 0.8% decline. The brand worked to turn around its men's business, which resulted in positive results during the quarter. Overall, the company said it is still focused on “improving the fundamentals.”
Athlete: The athleisure arm of Gap's empire increased sales 4% to $290 million, while comparable sales rose 5%. The results were not comparable to estimates. In the same period last year, comparable sales at Athleta fell 19%. Under its new CEO, former Alo Yoga boss Chris Blakeslee, the brand has managed to turn things around.
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