(Bloomberg) — Gap Inc. rose after reporting fourth-quarter earnings that exceeded expectations, a sign that efforts to turn the storied apparel retailer around are bearing fruit.
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Gap’s earnings per share, excluding some items, were 49 cents, which is more than double the average analyst estimate. The company also posted better-than expected revenue and comparable sales.
The results come about six months into the tenure of Chief Executive Richard Dickson, who was selected to turn the company around after years of abrupt management shifts and inventory mismanagement. Investors have so far cheered his performance, with shares roughly doubling in value since he took over.
The shares rose 8.6% at 4:24 p.m. in late New York trading.
For the full year, Gap expects sales to be roughly flat from the previous 12 months, with the company citing the “continued uncertain consumer and macro environment.” In the current quarter, Gap expects net sales of $3.3 billion, in line with the average analyst estimate. Dickson said the company sees the economy in 2024 being “roughly similar” to last year’s conditions.
“When you look back at 2023 we saw a lot of volatility: inflation, high interest rates, dwindling consumer savings, student loans,” he said in an interview. “Fortunately, we didn’t see a recession but our industry has been affected. While apparel is expected to decline in 2024, there are always winners in any market.”
The company has been investing in marketing across all four of its brands — Gap, Old Navy, Banana Republic and Athleta. This includes a promotional music video for Gap and a campaign for Athleta with Olympic swimmer Katie Ledecky. It also named fashion designer Zac Posen to a creative director role last month at Gap and Old Navy.
The efforts seem to be paying off. Comparable sales at Old Navy, which is the company’s largest brand, rose 2% in the quarter ended Feb. 3, the second consecutive increase after six quarters of declines. At the Gap brand, same-store sales rose by 4%, more than Wall Street anticipated and the biggest increase in more than a year.
Progress is still needed at Gap’s two smallest brands. Banana Republic same-store sales fell 4%, continuing a streak of declines but an improvement over the 8% drop in the prior quarter. While Banana Republic “has been making progress elevating its aesthetic” the turnaround will take time, the company said.
Athleta, which has been struggling to capture market share in the activewear market, posted a 10% drop in comparable sales. Dickson said the brand has had “missteps in product marketing and experience” that have “weighed on the performance.” He added that comparable sales are expected to improve by the second half of 2024.
(Updates with shares in the fourth paragraph.)
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