Dive Brief:
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Gap Inc. on Thursday reported net sales rose 2.4% year over year to $4.04 billion, as comps rose 1%. Online sales, which were 39% of net sales, rose 5%, while brick-and-mortar sales rose 1%, according to a company press release.
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By brand: Old Navy net sales rose 2% to $2.1 billion and comps fell 1%; Gap net sales were flat at $1.04 billion, with comps up 4% globally and flat in North America; Banana Republic net sales rose 8% to $517 million, with comps up 10%; and Athleta net sales rose 6% to $340 million, with flat comps.
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The apparel retailer swung to black in the quarter, notching $282 million in net income from last year’s $152 million net loss. The company wrote off $53 million in impairment charges related to its Yeezy Gap brand, after Kanye West, also known as Ye, ended the collaboration in September.
Dive Insight:
The two-year project that was Yeezy Gap, once viewed by some analysts as a potential billion-dollar brand, never bore much fruit. It fully collapsed last month, when the company said it would reverse course and pull any remaining designs due to Ye’s problematic behavior.
But Gap Inc.’s third quarter, when its once dormant Banana Republic brand was a standout, demonstrated that it needn’t resort to flashy collabs to turn itself around.
“Banana Republic remains a bright spot and we give Gap credit for its efforts to reinvent the brand,” GlobalData Managing Director Neil Saunders said in emailed comments. “This is a template [that] should be used in other parts of the business..”
That’s especially true at namesake Gap, which, not long after dropping its Yeezy effort, tied up with Amazon in order to boost sales. The brand has grown 1% since 2019 and has likely lost customers, according to GlobalData research. Its better Q3 results reflect improvements in fall merchandising, which drove slightly higher conversion and transaction values among existing customers, Saunders said.
The improvements seen in the third quarter, including the first positive comps of the year, could signal the beginning of a turnabout for Gap Inc., with some caveats, according to Wells Fargo analysts led by Ike Boruchow. The company’s year-ago comparisons are against low numbers, it’s still working through high inventory and a slowdown late in the quarter suggests a possibly tough holiday.
“While we see sequential improvement in the business today, given the ongoing volatility in the model over the past 12 months, there are too many unknowns to account for before getting excited,” Boruchow said.
Gap Inc. said that steep discounting, employed to move inventory and entice inflation-weary consumers, sapped some 370 basis points from its gross margin in the second and third quarters. For the fourth quarter, total company net sales could be down mid-single digits due to this “uncertain consumer and increasingly promotional environment,” the company also said in its release.
“The forward challenge for Gap is to at least maintain the stability of this third quarter. That is a tall order given market pressures and the company being on the back foot in terms of so many aspects of its operation,” Saunders said. “This is one of the reasons guidance for the holiday quarter has been downgraded. In this regard, we share Gap’s lack of confidence.”
