Gap Inc. is seeing signs of a bounce back into what CEO Richard Dickson said is the “cultural conversation.”
The San Francisco company’s revival is being led by its two largest businesses, Old Navy and Gap. And, while the companywide turnaround isn’t complete, the business is seeing efforts of the past year pay off.
“We continued to perform, while we transform,” Dickson told analysts during the company’s quarterly conference call on Thursday.
Even with the upbeat remarks, the CEO tempered expectations as he confirmed more work to do in continuing the momentum.
“Each brand is at a different point in the process,” said Dickson, who added he is “encouraged by the improvements.”
Companywide net sales in the fiscal year ended Feb. 1 rose 1 percent to $15.1 billion. The company thinks it can get sales in the current year to grow between 1 percent and 2 percent, even in what Dickson said is a contracting apparel market.
“We’ve all been operating in a highly dynamic backdrop for the last several years, and we’re expecting the same for 2025,” the CEO said. “We always study the consumer and we saw growth across all income cohorts in the fourth quarter.”
Working Through Tough Q4
Even with the growth, the fourth quarter wasn’t easy.
In the case of Old Navy, which generated $2.2 billion in the February quarter, its business was led by lower-income shoppers. The quarterly sales reflected a 3 percent decline from the year-ago period.
The Gap brand, with quarterly sales off 3 percent to $980 million, middle- and top-income shoppers drove the business.
Improved marketing has helped placed the brand “back in the cultural conversation,” Dickson told analysts.
“The brand campaigns and collaborations are attracting a new generation to Gap, while reinforcing the brand to those who have loved us for years,” he said.
Designer Zac Posen is now about a year into his role as Executive Vice President and Creative Director of Gap and Chief Creative Officer of Old Navy.
“He’s been bringing signficiant impact on many creative aspects and I would say its both inside the company and beyond….” Dickson offered of Posen’s performance.
As proof of Gap’s reemergence back into the “cultural conversation,” he pointed to actor Timothée Chalamet wearing GapStudio’s first-ever custom men’s look for the Academy Awards nominee dinner in Los Angeles last month.
Laggards Showing Improvement
The recovery story is different for Banana Republic and Athleta, the smaller of the company’s businesses.
For Banana Republic, the women’s business drove fourth-quarter sales of $545 million. That was down 4 percent from a year earlier as the retailer looks to make good on “re-establishing” itself in the premium space, Dickson said.
Tactically, that’s meant an emphasis on classic pieces, focused assortments and better fits. In all, the business ended the year “seeing signs of stabilization,” the CEO offered.
Activewear brand Athleta is having a tougher time turning. It’s also running up against stiff competition from brands such as La Jolla-based Vuori and Alo Yoga of Beverly Hills.
Athleta sales in the February quarter fell 5 percent to $396 million.
“Despite a strong start to the holiday season, Athleta struggled to keep up its core loyal customers’ engagement during the peak holiday shopping moments,” Dickson said.
What that means in the current year is a stronger focus on better product and more newness, the CEO said.
In the near term, Gap Inc. is “still in the process of resetting Athleta,” which Dickson warned could mean “choppy quarterly performance.”
Gap Inc. Annual Recap
For the full year, same-store sales rose 3 percent across a companywide fleet of 3,569 stores. Here’s a look at how each brand performed for the year:
- Old Navy was the only business to notch an annual sales gain of 2 percent to $8.4 billion. The chain’s same-store sales rose 3 percent.
- The Gap brand was flat with $3.3 billion in annual sales, while its same-store sales increased 4 percent.
- Banana Republic sales remained unchanged at $1.9 billion as same-store sales rose 1 percent.
- Athleta sales fell 1 percent to $1.4 billion, while same-store sales were flat.
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