Old Navy Propels Gap's Profit Outlook Higher

Gap Inc. raised its full-year profit outlook on Thursday, fueled by better-than-expected performance at its largest brand, Old Navy. The apparel company's second-quarter results, which were initially released prematurely, showed significant growth in revenue and earnings, driven primarily by the success of Old Navy.

Old Navy's Strong Performance Drives Gap's Overall Growth

• Old Navy's sales surged by 8% to $2.1 billion in the second quarter, exceeding analyst expectations.
• Comparable sales at Old Navy increased by 5%, demonstrating the brand's ability to attract customers seeking value amid inflation.
• CEO Richard Dickson highlighted Old Navy's success in offering both value and fashion, attracting customers across income levels.

Gap's Namesake Brand Shows Signs of Improvement

The Gap brand also experienced some growth, with revenue rising by 1% to $766 million in the quarter. Comparable sales increased by 3%, reflecting efforts to regain cultural relevance.

Banana Republic Struggles Amidst Pricing and Assortment Challenges

• Gap's elevated workwear line, Banana Republic, continued to weigh on the company's overall performance, with both revenue and comparable sales remaining flat in the second quarter.
• The company acknowledged that it needs to improve pricing and assortment strategies to revive the brand's performance.
• Dickson mentioned adjustments to pricing and the introduction of a deeper product selection in stores as key initiatives to address the challenges faced by Banana Republic.

Athleta Faces Declining Sales

• Sales at Gap's athleisure brand, Athleta, declined by 1% to $388 million in the second quarter.
• Comparable sales at Athleta dropped by 4%, reflecting the brand's continued struggles despite efforts by the new CEO, Chris Blakeslee.
• The company expressed confidence that Athleta would return to positive comparable sales growth in the remaining quarters of the year.

Gap's Overall Financial Performance

Gap's second-quarter results demonstrated improvement from the previous year, highlighting the company's turnaround efforts under Dickson's leadership.

• Earnings per share came in at 54 cents, exceeding analyst expectations of 40 cents.
• Revenue reached $3.72 billion, surpassing the anticipated $3.63 billion.
• The company's net income nearly doubled year-over-year, reaching $206 million.

Dickson's Focus on Turnaround Strategies

Dickson highlighted the company's commitment to financial and operational rigor as a key driver of its turnaround strategy. He emphasized the importance of strengthening brand identities, improving product offerings, and enhancing storytelling to regain cultural relevance.

• Gap's stock price rose more than 2% following the release of the earnings report, signaling investor confidence in the company's trajectory.
• The company's cash position also strengthened, reaching $2.1 billion at the end of the quarter.