Hurricanes and unseasonably warm weather hit sales in gap During the third fiscal quarter, but the apparel company still reported better-than-expected results, prompting it to raise its annual guidance for the third time this year.
Gap, which operates Old Navy, Banana Republic, Athleta and its namesake banner, expects fiscal 2024 sales to rise between 1.5% and 2%, compared with previous guidance of “slightly higher.” This comes ahead of the 0.4% growth expected by LSEG analysts, and bodes well for the all-important holiday shopping season, which is now underway.
The company also expects gross margins and operating income to grow more than it previously expected.
Shares rose about 13% in extended trading.
Here's how the nation's largest specialty apparel retailer fared compared to what Wall Street expected, based on a survey of analysts conducted by LSEG:
Earnings per share: 72 cents vs. 58 cents expected Revenue: $3.83 billion vs. $3.81 billion expected
GAP's reported net income for the three-month period ended Nov. 2 was $274 million, or 72 cents per share, compared with $218 million, or 58 cents per share, a year earlier.
Sales rose to $3.83 billion, up about 2% from $3.78 billion the previous year.
Across Gap's business, unseasonably warm weather impacted sales by about 1 percentage point during the quarter, while storms and hurricanes reduced overall store sales by 2%, CEO Richard Dixon told CNBC in an interview.
“We faced extraordinary conditions, hurricanes and storms that resulted in approximately 180 closures at peak impact,” Dixon said, adding that the storms affected Old Navy, Gap's largest brand by revenue, the most.
Once the weather improved, sales “rebounded” and the holiday shopping season is off to a “strong start” so far, Dixon said.
“We're excited about the holiday. Our teams are really focused on executing our plans. If we compare ourselves to where we were last year, our brands are in a much clearer place than they were last year,” he said. “We have stronger brand identities and are more trained in the playbook we talk about so much, which results in better product, better pricing, greater fit, better consumer experience and excellence in execution.”
Since Dixon took the helm at Gap a little more than a year ago, he has worked to turn the company around after years of decline. Under his direction, the company turned to nostalgic marketing and celebrity partnerships to regain its cultural relevance. Sales have grown for the last four straight quarters, but the company is still smaller than it was before, and critics say it needs to do more to overhaul its product lineup and increase full-price selling.
Here's a closer look at each brand's performance:
Old Navy: Gap said sales at its largest brands grew 1% to $2.2 billion, while comparable sales were flat, shy of the 0.9% growth that analysts had expected, according to StreetAccount. Dixon said Old Navy's children's category was particularly affected by the warm weather.
The Gap: The eponymous Gap banner grew 1% to $899 million during the quarter, while comparable sales rose 3% — better than the 2.3% growth Wall Street expected, according to StreetAccount. The company said the brand has seen four consecutive quarters of positive comparable sales and is benefiting from better marketing and products.
Banana Republic: The trendy workwear line had sales growth of 2% to $469 million while comparable sales fell 1%, slightly worse than the 0.8% decline expected by StreetAccount. The brand improved its men's business, driving results during the quarter. Overall, the company said it remains focused “on fixing the fundamentals.”
Athleta: The athletic arm of the GAP empire posted sales growth of 4% to $290 million while comparable sales rose 5%. The results were not comparable to the estimates. In the same period last year, comparable sales fell 19% at Athleta. Under its new CEO, former Alo Yoga president Chris Blakeslee, the brand has been able to turn things around.
