Gap Inc has reported a slight improvement in the fourth quarter thanks to sales uplifts from the Gap and Old Navy brands, but an analyst said the retailer will need more time to see any major impact from its reinvention plan.
The company’s net sales for the 14 weeks ended February 3 were $4.3 billion, up 1 per cent compared to the 13-week fourth quarter in FY22. This was inclusive of an estimated two percentage points of negative impact from the sale of Gap China, and a positive four percentage points from the additional week.
Comparable sales were flat year-on-year, while net income was $185 million compared to a net loss of $273 million last year.
“The fourth quarter exceeded expectations on several key metrics along with market share gains, reflecting improved trends at Old Navy and Gap and strong continued progress on margins and cash flow,” said Gap Inc president and CEO Richard Dickson.
Without the additional week, total sales were down by 2.7 per cent. According to MD of GlobalData Neil Saunders, this result is not terrible but represents the continued erosion of market share, especially when it comes off the back of a 6.2 per cent decline in the prior year.
“All that said, like last quarter, the figures continue to move in the right direction and give some hope that Gap is starting to stop its business shrinking,” Saunders added.
At the Gap brand, sales increased 8.3 per cent in the US, while comparable sales rose 4 per cent off the back of a 4 per cent decline last year. Saunders said the growth was largely due to interesting and relevant new products in womenswear.
Old Navy’s US sales rose 6.3 per cent, while comparable sales were up 2 per cent versus a 7 per cent decline in the prior year. Despite the positive numbers, Saunders believed the brand has become subdued and needs more energy and excitement – which can be aided by the recent appointment of Zac Posen.
Both Banana Republic and Athleta saw declines, with comparable sales down 4 and 10 per cent respectively. While Banana Republic is still undergoing a reinvention, Athleta has “gone off the boil” in a category that is becoming far more competitive, the analyst commented.
For the full year, Gap Inc recorded net sales of $14.9 billion, down 5 per cent, while comparable sales fell 2 per cent compared to FY22. Net income was $502 million versus net loss of $202 million in the prior year.
The company expects sales to be flat in FY24 and operating income to see low-to-mid teens growth, citing the continued uncertain consumer and macro environment.
“Overall, Gap is in a better place than it was a year ago. Some modest improvements are coming through but, most of all, the energy and mood music have shifted, Saunders stated.
“We think this heralds a lot of very positive changes to come. These will take time to deliver growth, but they will help stabilize the business in the year ahead,” he concluded.
