Gap Shares Skyrocket as Turnaround Gains Momentum with Strong Holiday Start
Gap Inc., the powerhouse behind brands like Old Navy, Banana Republic, Athleta, and its namesake Gap banner, has kicked off the holiday season with exceptional momentum. Despite weather-related challenges during its fiscal third quarter, the company reported strong results, surpassing Wall Street expectations and boosting its annual guidance for the third time this year.
With shares surging 13% in extended trading, investors are signaling confidence in Gap’s ongoing turnaround under CEO Richard Dickson, who has been at the helm for just over a year. His strategy of leaning into nostalgia, celebrity collaborations, and improved product offerings appears to be paying off as the company builds momentum heading into the crucial holiday shopping season.
Third Quarter: Resilience in the Face of Adversity
For the three months ending November 2, Gap posted net income of $274 million, or 72 cents per share, up from $218 million, or 58 cents per share, a year ago. Sales increased 2% year-over-year to $3.83 billion, exceeding analyst expectations of 0.4% growth, according to LSEG.
However, the quarter was not without challenges. Hurricanes and storms caused nearly 180 temporary store closures, leading to a 2% drop in physical store sales. Unseasonably warm weather further dampened results, shaving about 1 percentage point off quarterly sales, particularly impacting Old Navy’s kids’ category.
Despite these hurdles, Gap demonstrated resilience. “As soon as the weather turned around, we saw sales rebound,” said CEO Richard Dickson in an interview with CNBC. “The holiday season is off to a strong start, and we are energized about where we’re headed.”
Detailed Brand Performance
Each of Gap Inc.’s brands brought unique contributions to the quarter:
- Old Navy: The largest brand in Gap’s portfolio grew sales by 1% to $2.2 billion. Comparable sales, however, remained flat, missing analysts’ expectations of 0.9% growth. Warmer weather impacted seasonal categories like kids’ apparel, but Old Navy’s relevance as a family-friendly brand kept overall sales steady.
- Gap (Eponymous Brand): Sales for Gap’s namesake banner grew 1% to $899 million, with comparable sales up 3%, surpassing Wall Street’s 2.3% forecast. Improved marketing, better product quality, and increased brand relevance have driven four consecutive quarters of comparable sales growth for the banner.
- Banana Republic: The trendy workwear-focused brand increased its revenue by 2% to $469 million. However, comparable sales dipped by 1%, slightly worse than the 0.8% decline analysts anticipated. The men’s category showed notable improvement during the quarter, as the brand works to fix core issues and reestablish itself in the marketplace.
- Athleta: Gap’s athleisure division recorded a 4% sales increase to $290 million, with comparable sales climbing 5%. These results mark a sharp turnaround from the previous year, when comparable sales were down 19%. Under the leadership of Chris Blakeslee, a former Alo Yoga executive, Athleta is successfully regaining traction and focusing on its core demographic of activewear consumers.
A Revised Annual Outlook
Buoyed by these results, Gap raised its full-year guidance for the third time in 2024. The company now expects sales to grow between 1.5% and 2%, compared to its previous projection of “up slightly.” Gross margins and operating income are also forecasted to exceed earlier estimates.
This positive outlook is critical as the holiday season begins. Retailers typically rely heavily on fourth-quarter sales, and with strong early indicators, Gap appears poised to capitalize on consumer spending during the year’s busiest shopping period.
Driving the Turnaround
Since taking over as CEO in August 2022, Richard Dickson has been working tirelessly to revitalize Gap’s brands and address years of declining sales. His approach combines modernizing product offerings with strategies aimed at reconnecting Gap’s brands with consumers on an emotional level.
The company has leaned heavily into nostalgia-driven marketing, celebrity partnerships, and cultural relevance to capture attention and improve brand perception. For example, Old Navy’s family-centric messaging and Athleta’s focus on premium activewear have resonated with key demographics.
In addition to marketing, Gap has sharpened its playbook by focusing on better pricing, product innovation, and operational excellence. Dickson noted, “If we compare ourselves to last year, our brands are in a much stronger place. We’ve got better products, clearer brand identities, and a more polished execution strategy.”
Challenges and Opportunities Ahead
While Gap’s progress is undeniable, it is not without challenges. Critics have pointed to lingering issues with product assortment and the need to drive more full-price sales to boost profitability further. Although the company has posted four consecutive quarters of growth, it remains smaller than it was in its peak years.
Looking ahead, Dickson is optimistic about the long-term potential of Gap’s portfolio of brands. The company’s ability to navigate challenges like weather disruptions and market competition while maintaining growth is a promising sign of its resilience.
The Road Forward
As Gap enters the holiday season with optimism, the stakes are high. With a strong foundation built over the past year, the company is poised to make the most of this critical period. Whether through Old Navy’s family appeal, Banana Republic’s workwear focus, Gap’s iconic brand heritage, or Athleta’s resurgence, Gap Inc. is determined to remain a leader in specialty apparel.
The question now is whether these efforts will be enough to sustain momentum into 2025 and beyond. For now, though, Gap is back in the spotlight and delivering results that suggest it’s on the right track.
