Gap Inc. showed further signs of a turnaround: The company on Thursday reported a big jump in sales at Old Navy and solid bottom line results 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 year-over-year; comparable sales increased 3 percent year-over-year. Due to the 53rd week of fiscal 2023, comparable sales for the second quarter of fiscal 2024 are compared to the 13 weeks ended August 5, 2023 for consistency.
On Wall Street, Gap's second-quarter report was apparently viewed very positively, and the share price rose by three percent to $23.09 by early Thursday afternoon.
The company reiterated its guidance for net sales and operating expenses for fiscal 2024, but raised its forecast for gross margin, which it sees rising by about 200 basis points, from its previous forecast of at least 150 basis points. Gap released its second-quarter report on Thursday a few hours earlier than expected. The release was originally scheduled for after the market close.
“Gap Inc. delivered another strong quarter, exceeding financial expectations and gaining market share for the sixth consecutive quarter,” said President and CEO Richard Dickson. “Compared to our position just one year ago, we are in a stronger position across key metrics – including net sales, margins and our cash balance – and are making steady progress in revitalizing our brands. These results are a reflection of the commitment and collaboration of our global team and give me confidence that we are on track to realize the full potential of this extraordinary portfolio of iconic American brands.”
Richard Dickson rings the opening bell at the New York Stock Exchange.
NYSE
Old Navy is leading the turnaround. The brand's second-quarter net sales were $2.1 billion, up 8 percent from a year ago. Comparable sales increased 5 percent. “This is the fourth consecutive quarter of positive comparable sales for the brand as the continued focus on operational rigor leads to improved performance consistency,” the company said in its statement Thursday.
Gap brand net sales of $766 million in the second quarter were up 1 percent from a year ago. Comparable sales increased 3 percent, marking the third consecutive quarter of positive comparable sales for the brand, according to the company. “Gap's revitalization efforts have helped drive market share gains for the brand over the past five quarters,” the company said.
At Banana Republic, net sales were flat year-over-year at $479 million in the second quarter. Comparable sales were also flat. “The brand remains focused on correcting the fundamental issues and is actively working to improve its pricing and assortment architecture,” the company said. Banana continues to search for a new CEO. The position is currently vacant.
At Athleta, net sales of $338 million in the second quarter were 1 percent lower than the prior year. Comparable sales decreased 4 percent. The company said it expects a return to positive comparable sales growth at Athleta for the remainder of the year.
In other results released Thursday, store sales rose 4 percent year-over-year. The company ended the quarter with 3,568 store locations in about 40 countries, 2,541 of which were company-operated.
Online sales increased 7 percent year-on-year and accounted for 33 percent of total net sales.
The gross margin of 42.6 percent represents an increase of 500 basis points over the previous year's gross margin.
“The challenge for Gap this quarter was to demonstrate the momentum of the growth it has seen over the last two quarters. We believe it has done this with total sales up 4.8 percent and comparables up 3 percent,” Neil Saunders, managing director of GlobalData, commented on Thursday. “Admittedly, this has come against the backdrop of a weak prior year and does not fully offset all of the past declines, but it is a very clear step in the right direction and 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 US, where total sales increased by a very solid 7 percent year-on-year,” Saunders said, adding: “The current performance also outperformed the market and underscored the fact that Gap is regaining market share in the apparel sector. … While the overall sales numbers are solid, the underlying performance is more mixed. Old Navy led the pack with 9.9 percent sales growth in the US, helped by a 5 percent increase in global comparables.”
Saunders said the numbers indicate that Old Navy is now “firmly back on the up” after a period of poor performance.
“We think the quality of the assortment has improved, with many fashionable pieces mixed in with the staples that consumers come to Old Navy for. The store environment is also more engaging, with less clutter and more compelling signage around pricing and offers. These may be simple changes, but they have clearly helped drive sales in a constrained environment where value is still very much at the forefront,” Saunders said.
Sanders added that the Gap brand's performance has been “more muted” compared to Old Navy, and that Banana Republic's performance, while not stellar, has been better than in the recent past when declines have been more severe.
