Gap Q4 earnings smash estimates

Gap Inc. swung to a profit in its fourth quarter amid rising sales at its namesake and Old Navy brands and improved in-store traffic.

The apparel retailer, however, remained challenged by declining sales at its Banana Republic and formerly high-flying Athleta brands. 

“Our brands are all in different stages of reinvigoration,” said president and CEO Richard Dickson on the company’s earnings call. The former Mattel executive took the reins at Gap in August.

Net income totaled $185 million, or $0.49 per share, for the quarter ended Feb. 3, compared with a loss of $273 million, or $0.75 per share, in the year-ago period. Analysts had expected earnings of $0.25 a share.

Gap’s net sales inched up 1% to $4.3 billion, just ahead of estimates of  $4.2 billion. (The company noted that the addition of the 53rd week in fiscal 2023 contributed approximately 4 percentage points of growth to the fourth quarter.)

Comparable sales were flat. In-store sales increased 4%. Online sales decreased 2% and accounted for 40% of total revenue. 

Here is a breakdown of company sales by banner. 

Old Navy: Net sales rose 6% to $2.29 billion. Comparable sales role 2%. It was the second consecutive quarter of positive comps at the brand, demonstrating “improved consistency in performance and execution,” the company said.

Gap: Net sales fell 5% to $1.01 billion (excluding the estimated negative impact to sales of 8 percentage points related to the sale of Gap China, sales would have been up 3%).  Comparable sales rose 4%, driven by continued strength in women's, which gained market share for the fifth quarter in a row. 

Banana Republic: Net sales fell 2% to $567 million, and comparable sales were down 4%. 

“While the brand has been making progress elevating its aesthetic, re-establishing Banana Republic will take time and there is work to be done to better execute many of the fundamentals,” the company stated.  

Athleta: Net sales fell 4% to $419 million. Comparable sales were down 10%.  The company noted that sales continue to be challenged due to tougher comparisons as the brand laps a period of elevated discounting last year. In August, Athleta named Chris Blakeslee,  former president of Alo Yoga, as CEO.

Gross margin was 38.9%, an increase of 530 basis points versus last year.

“The fourth quarter exceeded expectations on several key metrics along with market share gains, reflecting improved trends at Old Navy and Gap and strong continued progress on margins and cash flow,” said Dickson in the earnings statement. “The financial and operational rigor we have worked to develop, and will continue to pursue, is enabling us to focus on reinvigorating our brands with the goal of generating profitable growth and value for shareholders. 

For the full year, Gap’s net sales fell 5% to $14.9 billion (inclusive of an estimated 2 percentage points of negative impact from the sale of Gap China.)

For its current quarter and also for fiscal 2024, the company is forecasting sales to be flat.

Gap ended the fiscal year with a total of 3,352 stores, of which 2,685 were company operated. The count includes 1,238 Old Navy stores, 493 Gap stores, 419 Banana Republic stores and 257 Athleta stores in North America.