3Q report gives Gap big boost in market

A Gap store in the Times Square neighborhood of New York, US, on Monday, Nov. 13, 2023. MUST CREDIT: Bloomberg photo by Bing Guan

Gap Inc. shares jumped Friday after better-than-expected third-quarter results showed that Chief Executive Officer Richard Dickson's turnaround plan is starting to take shape.

Adjusted earnings of 59 cents a share were triple the average analyst estimate, thanks in part to fewer promotions and better managed inventories. While same-store sales fell for a fourth-consecutive quarter, the decline was less than expected as stronger results at Old Navy, which is Gap's biggest brand, offset weakness at Athleta and Banana Republic.

The shares rose $4.18, or 31%, to close Friday at $17.85.

"Overall, I feel good about our performance, but there's continued work to do on the brands," Dickson said in an interview. He laid out ideas including better marketing and product mix at Banana Republic and a more focused marketing effort toward women at Old Navy.

The results are an important step toward stabilizing the apparel retailer's business after years of turbulence that have been marked by abrupt management departures and inventory missteps. While the company briefly experienced a boom during the pandemic, sales have contracted in six of the last eight quarters and shares have lost more than 40% of their value in the last two years, underscoring the urgency that Dickson faces to turn the company around.

Comparable sales at Old Navy rose for the first time since 2021, while at the Gap brand they fell slightly. Old Navy was bolstered by a website refresh and a women's apparel campaign that drove market-share gains, Dickson said.

Banana Republic, meanwhile, posted an 8% same-store sales decline, while Athleta fell 19%.

At Banana Republic, the company has been working on a repositioning strategy that's included the release of a luxury furniture line and a collection with designer Peter Do. "That's going to take some more time to manifest," Dickson said. "We're transitioning from highly transactional to a premium lifestyle brand."

Athleta, which appointed a new president and CEO in August, remained challenged after misfires on product, marketing and retail execution, Dickson said. "We know that the brand to some extent needs a full reset, but we believe we have long-term momentum," he added.

Gap's results are in line with retailers such as Target Corp. and Macy's Inc., both of which also reported profitability improvements despite quarterly declines in same-store sales. Other specialty apparel retailers, including Abercrombie & Fitch Co. and American Eagle Outfitters Inc., will report third-quarter results next week.