Gap’s fiscal second-quarter income got here in lighter than anticipated on Thursday however gross sales at Banana Republic far exceeded expectations because the model’s turnaround begins to indicate outcomes.
The specialty attire firm behind Old Navy, Athleta, Banana Republic and its namesake banner noticed comparable gross sales rise 1% in the course of the quarter, weaker than the 1.9% rise that analysts had anticipated, in line with StreetAccount. Overall income additionally missed expectations, whereas earnings per share got here in higher than estimates.
Gap’s inventory fell in after-hours buying and selling.
While Gap, Banana Republic and Old Navy all noticed comparable gross sales rise in the course of the quarter, Athleta dragged down the corporate’s general efficiency with comps down 9%.
“Clearly, Athleta is a powerful brand in the active space, being the number five brand in the space, but we’re disappointed in the quarter. We have moved away, if you will, from really distinctive performance roots,” CEO Richard Dickson advised CNBC in an interview. “We’ve paid a lot of attention, trying to court a new customer, and ultimately didn’t have enough offerings for our core customer. As we balance that out, we’ve been very transparent to say it’s a year of reset for us.”
Last month, Gap introduced that Maggie Gauger, a longtime veteran of Nike, had been tapped as Athleta’s subsequent CEO — the third high govt employed to helm the model within the final two years.
Here’s how Gap carried out within the quarter in contrast with what Wall Street was anticipating, based mostly on a survey of analysts by LSEG:
- Earnings per share: 57 cents vs. 55 cents anticipated
- Revenue: $3.73 billion vs. $3.74 billion anticipated
The firm’s reported internet revenue for the three-month interval that ended Aug. 2 was $216 million, or 57 cents per share, in contrast with $206 million, or 54 cents per share, a 12 months earlier.
Sales rose to $3.73 billion, up barely from $3.72 billion a 12 months earlier.
The firm reaffirmed its fiscal 2025 internet gross sales development outlook and is continuous to anticipate income to develop between 1% and a couple of%, in keeping with estimates of 1.6%, in line with LSEG. For the present quarter, Gap is anticipating gross sales to develop between 1.5% and a couple of.5%, higher than the two% that analysts had estimated, in line with LSEG.
When Gap last reported results in May, the tariff scenario throughout Asia, the place the corporate manufactures a few of its merchandise, was nonetheless shaping up however now, the image is clearer. It beforehand mentioned it anticipated tariffs to price between $100 million and $150 million on a internet foundation and on Thursday, mentioned these prices at the moment are going to be between $150 million and $175 million.
To offset the influence, Gap is doing what different firms are doing: working with its suppliers, adjusting its sourcing, diversifying its provide chain and taking focused worth will increase the place acceptable.
Notably, the corporate mentioned it does not anticipate the annualization of tariffs to trigger any additional declines in working revenue in 2026.
“As it relates to pricing, we’re making targeted adjustments with pricing, as we always do. There isn’t anything that we’ve done that is substantially different,” Dickson mentioned. “We focus on making sure that we’re presenting to our consumer the right value proposition, and ultimately want to make even more sure that we’re sustaining the momentum and market share gains that our playbook has been performing.”
Just over two years into Dickson’s tenure as Gap’s CEO, the corporate is in a far completely different place. It’s seen six straight quarters of comparable gross sales development, it is sitting on a $2.2 billion money pile and its manufacturers are again on the heart of tradition and dialog.
Recently, Gap launched its “Better in Denim” marketing campaign that includes Katseye and Kelis’s 2003 hit “Milkshake.” Dickson mentioned the marketing campaign has been a standout success, delivering 20 million views within the first three days, 400 million whole views and eight billion impressions. It’s additionally the No. 1 search on TikTook, Dickson mentioned.
“We could all acknowledge that Gap moved from what was a clothing retailer just a couple years ago, that was overly promotional and didn’t have necessarily a strong voice from a merchandising perspective to consumers, and now today, it is a pop culture brand that’s telling great stories, driving great merchandising initiatives and arguably shaping culture with some of the programs and products and marketing campaigns,” Dickson mentioned. “This is proving that Gap is a powerful pop culture brand, and this is also what our playbook looks like when you get it right.”
The marketing campaign highlights the efforts Gap is taking to remain aggressive within the essential denim class, particularly with Levi’s latest partnership with Beyoncé and American Eagle‘s campaign with Sydney Sweeney. At a time when customers are pulling again on nice-to-have merchandise like new garments and equipment, retailers have needed to do extra to chop via the noise and guarantee they’re resonating with customers.
Still, as the corporate continues to make strides in its turnaround plan, Wall Street has come to anticipate loads, and Gap has needed to work more durable to beat expectations.
During the quarter, its gross margin got here in at 41.2%, behind expectations of 41.9%, in line with StreetAccount.
Here’s a more in-depth take a look at how every model carried out:
Old Navy: Gap’s largest and most vital model noticed gross sales of of $2.2 billion, up 1% in contrast with final 12 months. Comparable gross sales have been up 2%, in contrast with expectations of up 2.2%, in line with StreetAccount.
Gap: The namesake banner noticed internet gross sales of $772 million, up 1% in contrast with final 12 months. Comparable gross sales have been up 4%, in contrast with expectations of 4.1%, in line with StreetAccount. Its the seventh consecutive quarter of comparable gross sales development.
Banana Republic: The safari-chic, enterprise necessities model noticed internet gross sales of $475 million, down 1% in contrast with final 12 months. Comparable gross sales have been up 4%, far forward of expectations of 0.2%, in line with StreetAccount.
Athleta: The athleisure model noticed gross sales of $300 million, down 11% in comparison with final 12 months. Comparable gross sales have been down 9%. The model’s new CEO is seeking to reverse that hunch and reconnect with Athleta’s core client.