Gap Inc has reported another quarter of positive top-line growth, proof that the turnaround strategy has put the business on a positive trajectory.
The company’s net sales for the third quarter ended November 1 increased 3 per cent to $3.9 billion, an improvement compared to the flat results in the second quarter.
Comparable sales were up 5 per cent, marking the seventh consecutive increase.
According to GlobalData MD Neil Saunders, the retailer has cleared another hurdle this quarter, proving that the turnaround strategy has taken hold and placed the company and its brands on a positive trajectory.
Saunders attributed the positive performance to an injection of energy behind the company’s various businesses, both internally and externally.
“From an internal perspective, the company has more ambition and determination than it has had in a long while and this is showing through in everything from designs to store execution to marketing. From an external perspective, the company is showing up in a more positive way for the customer,” he said.
At the Gap brand, net sales increased 6 per cent and comparable grew 7 per cent. According to the analyst, the brand is now more culturally relevant than it has been for a long time.
“Younger generations – which are driving growth – want brands that resonate. And our data show that awareness of, and interest in, Gap has risen thanks to good marketing.”
At Banana Republic, net sales were down 1 per cent but comparable sales up 4 per cent. Saunders considered this as very positive, given the brand is in a more challenging part of the market as consumer budgets are squeezed.
Old Navy saw net sales improve 5 per cent and comparable sales rise 6 per cent. Saunders attributed the growth to the consumer focus on value and the brand’s fashion-driven categories like denim.
Athleta remained the weak spot with sales down 11 per cent on both reported and comparable basis. While the athleisure market is softer and way more competitive, the big decline requires an urgent fix, Saunders said, adding that Gap might also need to strategically reevaluate whether it wants to keep this brand in its stable.
The company’s bottom line was still under pressure during the quarter with net income down 13.9 per cent to $236 million. Saunder said most of the decline came from tariffs, and that Gap remains profitable to a healthy degree.
“The challenge was always to fix the top line, and that job is being done,” he said.
The retailer has slightly lifted its outlook for the full year, expecting net sales to grow 1.7-2 per cent compared to the previous guidance of 1-2 per cent. Net store closures are forecast to be approximately 35.
