The question of what to do about Gap Inc.’s unfulfilled promise of hitting $2 billion in net sales with Athleta is becoming more pronounced the longer the activewear brand’s turnaround stalls.
With the active line on its second CEO in about as many years, heavy discounting and lack of clarity on brand voice, Gap Inc. is giving Athleta more time and another go at straightening up. How much more time that’s going to take is unclear, but Athleta is the laggard in a Gap Inc. portfolio of star players that have been able to round the bend in their story arc.
“Our portfolio consists of iconic trusted brands, each in a different stage of the brand reinvigoration journey,” Gap Inc. President and CEO Richard Dickson told analysts during an earnings update Thursday. “And today, the playbook is driving growth in three of our four brands.”
The company’s two largest divisions dominate that story.
Old Navy, the largest of the pack, grew sales 1 percent in the quarter ended Aug. 2 with sales of $2.2 billion. Same-store sales rose 2 percent driven by high-performing denim shop-in-shops in stores and a new activewear campaign called “New Moves,” featuring Lindsay Lohan.
Meanwhile, Gap had what Dickson called a “standout quarter,” with sales up 1 percent to $772 million. Same-store sales rose for the seventh straight quarter, increasing 4 percent.
The company collaborated with contemporary golf brand Malbon and travel accessories line BÉIS, with the two rounding out now a dozen collaborations over the past two years for Gap.
“This is fueling momentum,” Dickson said.
Meanwhile, Banana Republic is still a work in progress, but no slouch when it comes to showing it can become the “premium lifestyle” retailer its parent company desires.
Banana Republic sales fell 1 percent to $475 million, but it’s doing better in stores with comparable sales up 4 percent on an edited assortment, improved marketing and customer service and strong pant performance.
Athleta’s Decline
“Disappointed,” was floated by Dickson during Thursday’s earnings call in talking about Athleta’s performance.
Athleta generated sales of $300 million in the quarter, reflecting a decline of 11 percent from the comparable period.
Comparable sales worsened in the quarter to down 9 percent, versus off 4 percent in the fiscal second quarter a year ago.
Markdowns defined the period as the company sought to rid its stores of underperforming styles, with CFO Katrina O’Connell explaining, “we had to go pretty deep in discounting, given the challenging sales performance as we really had to clear the product that didn’t resonate with consumers.”
Executives have continually called 2025 a “reset year” for the business. There’s nothing else to call it with former president and CEO Chris Blakeslee out after about two years in the top spot, replaced Aug. 1 with former head of Nike’s North American women’s business Maggie Gauger.
“[Gauger’s] extensive background across retail, strategy, merchandising and product creation, in addition to her experience reinvigorating underperforming segments at Nike and her deep alignment with Athleta’s purpose are all qualities that will help us stabilize the brand and ultimately put it on a path to growth,” Dickson said.
What to Do About Athleta
Athleta’s still a sizable business and up until about 2021, it was barreling down a path to $2 billion in net sales.
It’s also come a long way from when Gap bought the business in 2008 for $150 million.
Athleta, which launched in 1998 in Petaluma, rolled into the marketplace with a different proposition in activewear focused on performance at a time when there was not as much competition. A decade after its founding, it earned the badge of certified B Corporation.
The brand surpassed $1 billion in sales in fiscal year 2020, a jump from $978 million in the previous period. It was on a growth track up until fiscal year 2022, which ended Feb. 3, 2024. The next two fiscal years, 2023 and 2024, saw the business decline.
Since Athleta’s start, the marketplace has seen the proliferation and traction of newer active brands that have taken hold, including Alo Yoga and its pitch as an ultra luxe, celebrity-favorite brand and the more value-oriented Fabletics. There’s also Vuori, which raised $825 million last November. The raise valued the business at $5.5 billion.
“Athleta is a powerful brand in the active space, [a] B Corp, the No. 5 women’s active brand in the market,” Dickson offered. “That said, we’ve talked about the brand being in reset mode. And we continue to believe that this brand has great potential. We moved away, if you will, from distinctive performance roots, which the brand was sort of known for.”
Moving forward, the company will trim Athleta’s inventory and edit down the assortment to focus on what’s actually selling. Long term is the question of whether management thinks Athleta can improve enough to be the No. 1 women’s active brand. In such case, who would it have to beat out and is that plausible?
“We believe in Athleta’s potential in the women’s active category and are confident that under Maggie’s leadership, Athleta can reemerge as a purpose-led brand, poised to matter even more through product, trend and narratives that women deeply connect with,” Dickson said.
Gap Inc. Numbers
Overall, Gap Inc. generated net sales of $3.7 billion in the August quarter, which was flat from the prior-year period. Same-store sales rose 1 percent, led by growth of online sales that offset the decline in brick-and-mortar.
Companywide net income in the August quarter was $216 million, which is up nearly 5 percent from a year ago.
The company’s projecting net sales in the full fiscal year ending January 2026 to be $15.3 billion to $15.4 billion, reflecting an increase in the range of 1 percent to 2 percent.
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