Gap Inc. reported another quarter that surpassed expectations, signaling that its turnaround under CEO Richard Dickson is proceeding more effectively and rapidly than Wall Street had anticipated. Shares surged 17% in after-hours trading on Thursday. The retailer, which operates brands including Old Navy, Banana Republic, Athleta, and its namesake label, exceeded forecasts for both revenue and earnings during the critical holiday quarter. Comparable sales grew by 3%, ahead of the expected 1% increase, according to StreetAccount.
In the fiscal fourth quarter, Gap’s earnings per share were 54 cents, surpassing the anticipated 37 cents, while revenue reached $4.15 billion, beating the expected $4.07 billion. The company reported net income of $206 million, or 54 cents per share, for the three months ending February 1, compared to $185 million, or 49 cents per share, a year earlier. Sales declined to $4.15 billion, a decrease of about 3% from $4.30 billion the previous year, partly due to an extra selling week in the prior year period.
Looking ahead, Gap anticipates sales growth of 1% to 2% in the coming year, aligning with analyst expectations of a 1.7% increase. For the current quarter, the company’s guidance was slightly below forecasts, projecting sales to be “flat to up slightly,” compared to Wall Street’s estimate of a 1.5% increase.
Gap’s CFO, Katrina O’Connell, highlighted the challenges of operating in a dynamic environment and emphasized the company’s focus on managing controllable factors. Amid ongoing trade tensions involving the U.S., China, Canada, and Mexico, Gap has been assessing the impact of new tariffs. CEO Dickson noted that less than 1% of its products come from Canada and Mexico combined, and less than 10% from China. He stressed the goal of minimizing consumer impact through supplier negotiations and cost management.
O’Connell confirmed that current tariffs are factored into the company’s guidance, with any margin impact expected to be “relatively minimal.” Since Dickson assumed the CEO role a year and a half ago, Gap has returned to growth and improved its brand image, achieving its highest gross margin in over 20 years at 41.3% in fiscal 2024.
The former Mattel executive, credited with revitalizing the Barbie brand, has successfully applied his expertise to Gap’s portfolio. After four consecutive quarters of robust performance, the strategy appears sustainable. Recent highlights include apparel from Zac Posen, Gap’s creative director, worn by celebrities like Timothée Chalamet, and the return to growth of the previously underperforming Banana Republic brand. While Athleta continues to face challenges, the brand’s decline has stabilized.
— news from CNBC