Gap Inc. showed further signs of turning itself around, reporting Thursday a big leap in sales at Old Navy and a solid bottom-line for the second quarter ended Aug. 3.
Net income rose to $206 million, or diluted earnings per share of 54 cents, compared to $116 million, or 32 cents per share in the year-ago period.
Net sales of $3.7 billion were up 5 percent compared to last year; comparable sales were up 3 percent year-over-year. Due to the 53rd week in fiscal 2023, to maintain consistency, comparable sales for the second quarter of fiscal 2024 are compared to the 13 weeks ended Aug. 5, 2023.
Related Stories
Wall Street apparently felt pretty good about Gap’s second-quarter report and lifted the stock price 3 percent to $23.09 by early afternoon Thursday.
The company reaffirmed its net sales and operating expense outlook for fiscal 2024, but increased its outlook for gross margin, which it sees expanding by about 200 basis points versus its prior forecast of at least a 150-basis-point increase. Gap released its second-quarter report a few hours earlier than expected on Thursday. The release was originally scheduled to be posted after the closing bell.
“Gap Inc. delivered another successful quarter, exceeding financial expectations and gaining market share for the sixth consecutive quarter,” said president and chief executive officer Richard Dickson. “In comparison to where we were only one year ago, we are in a stronger position across key metrics that matter—including net sales, margins and our cash position — and we are making consistent progress in the reinvigoration of our brands. These results are a reflection of the dedication and collaboration of our global team, reinforcing my confidence that we are well on our way to unlocking the full potential of this extraordinary portfolio of iconic American brands.”
Old Navy is leading the turnaround charge. The brand’s second-quarter net sales of $2.1 billion were up 8 percent compared to last year. Comparable sales rose 5 percent. “This represents the fourth consecutive quarter of positive comparable sales at the brand as its continued focus on operational rigor is driving improved consistency in performance,” the company said in its statement Thursday.
Gap brand’s second-quarter net sales of $766 million were up 1 percent compared to last year. Comparable sales rose 3 percent, representing the third consecutive quarter of positive comparable sales at the brand, the company indicated. “Gap’s reinvigoration efforts have helped drive market share gains at the brand for the past five quarters,” the company stated.
At Banana Republic, second-quarter net sales of $479 million were flat compared to last year. Comparable sales were also flat. “The brand continues to focus on fixing the fundamentals and is actively working to improve its pricing and assortment architecture,” the company stated. Banana continues to search for a new CEO. The position is currently vacant.
At Athleta, second-quarter net sales of $338 million were down 1 percent compared to last year. Comparable sales were down 4 percent. The company indicated that it expects Athleta to return to positive comparable sales growth for the remainder of the year.
In other results reported Thursday, store sales increased 4 percent compared to last year. The company ended the quarter with 3,568 store locations in about 40 countries, of which 2,541 were company operated.
Online sales increased 7 percent compared to last year and represented 33 percent of total net sales.
Gross margin of 42.6 percent increased 500 basis points versus last year’s gross margin.
“This quarter’s challenge for Gap was to show momentum in the growth it has delivered over the past two quarters. In our view, it has achieved this with a 4.8 percent uplift in total sales and a 3 percent gain in comparable terms,” Neil Saunders, managing director of GlobalData, commented Thursday. “Admittedly, this has been delivered against the backdrop of a weak prior year and it does not entirely offset all the past declines, but it is a very firm step in the right direction which lends weight to Richard Dickson’s argument that the business is on the road to recovery.
“We are particularly pleased with the performance in the U.S., where overall sales grew by a very solid 7 percent over the prior year,” Saunders said, adding, “The current performance is also market beating which underlines the fact Gap is taking back share in apparel.…While the overall sales figure is solid, underlying performance is more mixed. Old Navy led the pack with 9.9 percent sales growth in the US, supported by a 5 percent uplift in global comparables.”
Saunders said that “after a period of dire performance,” the figures indicate that Old Navy is now “firmly back on the front foot.”
“We think the quality of the range as improved with many more fashion-led pieces mixed with the essential staples consumers come to Old Navy for. Store environments are also sharper with less clutter and more compelling signage around pricing and deals. These might be simple changes, but they have clearly been effective in helping to drive sales in a constrained environment that is still very focused on value,” Saunders said.
Sanders added the performance at Gap brand compared to Old Navy was “more muted” and Banana Republic’s performance wasn’t great but better than the recent past when declines were steeper.
