Gap Inc. and its four iconic fashion brands – Old Navy, Banana Republic, Athleta and namesake Gap – have finally regained their momentum.
CEO Richard Dickson’s first-quarter earnings after just eight months in office showed global net sales rose 3.4 percent to $3.4 billion, and all four brands posted positive numbers on a comparable basis, for the first time in a decade.
Dickson is confident that he and his team are on the right track and raised his full-year forecast to “slightly higher” net sales and “significantly higher” operating profit growth in the mid-40 percent range.
“We are on a journey to become a powerful house of iconic American brands that shape culture,” he said in a statement. “While this will take time, perseverance and rigor, we are excited about the opportunities ahead as we unleash the power of Gap Inc.”
Strong performance in the USA
The company’s turnaround showed even better results in the U.S., where about 60% of its stores are located and nearly 90% of its revenue is generated. U.S. net sales rose 5.2% to $3 billion, and all four brands delivered net growth in the States. International sales, including Canada, fell just over 8%, with CFO Katrina O’Connell noting on the earnings call that “global economic conditions remain uncertain and at the forefront.”
Gap Inc.’s net sales in the United States in the first quarter of 2024
By Pam Danziger, Unity Marketing
“We believe management’s focus on driving cultural relevance through limited editions and marketing is translating into financial results,” TD Cowen reported, citing unexpected positive growth at Banana Republic – which is currently looking for a new CEO – and Athleta, which has gained market share through fabric innovations and momentum in core pants sales.
Cowen analysts added: “We are pleased to see both Old Navy and Gap gaining market share. Old Navy’s women’s business is strong and Gap is seeing encouraging results across all categories, particularly in women’s, driven by the success of the Linen Moves campaign.
Building the cultural connection, brand by brand
Upon arrival, Dickson’s first task was to revitalize each brand’s cultural relevance and clearly delineate its unique position in the company hierarchy, which had become unclear under previous leadership. He noted that each brand is at a different point in this process, but he has prepared a playbook to guide execution on all fronts.
“Our products are strengthened by more compelling storytelling in each brand that is clear, distinct and better differentiated,” he said on the earnings call. “Cultural relevance and marketing are starting to show up in key metrics like buzz, consideration and brand relevance.”
To increase the cultural relevance of each brand, Gap Inc. has partnered with Omnicom Media Group, its new cross-brand agency. “No agency understands customer centricity better than them, and I’m thrilled to partner with them as we evolve Gap Inc. for a new era,” Dickson said in the agency announcement earlier this year.
Dickson reported on the initial steps of the partnership on the conference call, saying, “This partnership is in part another part of our strategic revitalization plan, which is helping our brands tell a much more relevant, innovative and modern story by using a very different media mix than in the past and creating really compelling stories. It’s not about spending more. It’s really about spending more efficiently.”
Old Navy dresses the family stylishly and within budget
Old Navy CEO Horatio Barbeito is a relatively new member of the Gap Inc. team, joining Old Navy in August 2022 after 26 years at Walmart. The brand focuses on the value space with sophisticated storytelling around fashion and value.
“Old Navy reinforces its position as a style authority in the value segment with a combination of storytelling and pricing with wow prices in store and online,” said Dickson. “Old Navy’s brand acceptance scores on quality, impression and reputation are high and give us confidence.”
Celebrity fashion designer Zac Posen, who was named Old Navy’s creative director earlier this year, is tasked with boosting Old Navy’s fashion credibility for consumers’ inflation-plagued budgets. He’s succeeded in doing so in the brand’s new summering campaign, which features actresses Tracee Ellis Ross and Yara Shahidi looking “fabulous.” The response has been fantastic, Dickson shared.
The women’s apparel business is gaining momentum, and the company has seen market share gains in the active performance wear segment for the third quarter in a row, where the company now ranks fifth.
Gap relies on collaboration between Leinen and DÔEN
The Linen Moves campaign started for Spring 2024 really made a difference for the Gap brand in terms of fashion. Grammy-winning artist Tyla and a team of dancers grooving to Jungle’s hit “Back On 74” went viral on TikTok, garnering over a billion views. Gap followed with a linen collection for the summer season, featuring model Taylor Hill.
“We are reinvigorating the brand and working to deliver confident, on-trend products that are priced right and expressed through big ideas and culturally relevant messaging. Linen Moves is a great example,” Dickson said, reporting that Gap Linen sales grew double-digits year over year.
Also making waves was a limited-edition 51-piece collection with DÔEN, a Californian fashion label founded by sisters Margaret and Katherine Kleveland and known for its feminine style. The collaboration, celebrating sisterhood, included a range of women’s wear as well as matching children’s wear, priced between $20 and $158.
Dickson hinted that there will be more such brand collaborations. “Collaborations remain an important part of our brand strategy.”
Banana Republic focuses on fashion basics
Banana Republic’s resurgence in premium fashion is lagging behind Old Navy and Gap after the company was distracted by its entry into home furnishings, which led to the departure of then-CEO Sandra Stangl and the search for a successor continues.
Still, Banana Republic saw an unexpected sales boost, showing a significant improvement over the fourth quarter, when comparable sales declined 4%, and ending the full year 7% below the prior-year level.
The Banana Republic Classics and Finest Fabrics collections performed well last quarter thanks to greater product depth in stores and increased marketing.
“We see a great opportunity for Banana Republic and are working to create the conditions for improved performance in the future under new leadership,” he said, without providing further details on what will happen to BR Home.
Athleta discovers the power of herself
At the end of last year, Athleta, the group’s sportswear brand, had the biggest problems. Sales fell 12% year-on-year and 10% in the fourth quarter. That changed in the first quarter.
Athleta delivered 5% global sales growth, although CFO O’Connell warned that second-quarter net sales are expected to decline mid-single digits as it makes up for deep discounting from last year.
However, they see hope for the brand in Athelta’s new “Power of She” positioning with world-class athletes Simone Biles and Katie Ledecky.
“This year has been a huge step forward for women’s sport as female athletes around the world begin to receive the attention and recognition they have long deserved,” Dickson said in the earnings call. “It’s an important cultural moment and we’re proud to be an authentic part of it as the largest sports brand focused exclusively on confident women and girls.”
As a gateway into the brand for customers to engage with the brand, core bottoms performed well this quarter and the launch of PowerMove fabric also brought new business.
Capturing the cultural zeitgeist
NEW YORK, NEW YORK – MAY 06: (LR) Zac Posen and Da’Vine Joy Randolph attend the 2024 Met Gala … [+] Celebrate “Sleeping Beauties: Reawakening Fashion” at the Metropolitan Museum of Art on May 6, 2024 in New York City. (Photo by Cindy Ord/MG24/Getty Images for The Met Museum/Vogue)
Getty Images for The Met Museum/Vogue
Dickson quickly realized that each of his brands needed to express the cultural zeitgeist in a unique way, in a way that was authentic to the brand.
This quarter’s results show progress in the simulation, and more is expected as designer Zac Posen’s creative influence is now felt throughout the company.
Posen’s creativity will be instrumental in moving Gap forward, as evidenced by the Met Gala debut of its wardrobe actress Da’Vine Joy Randolph in a stunning custom dress made from the brand’s signature denim. Posen accompanied her, wearing an ivory poplin suit by Banana Republic.
Of Posen’s influence, Dickson said, “He’s focused on influencing many creative aspects of our company, especially in design and merchandising, but his role is part of our broader strategy to cultivate a culture of creativity. And frankly, that’s been missing here at Gap Inc. for some time.”
“And just yesterday, Zac was closely involved in the opening of our new Banana Republic flagship store in Soho, which by the way is a great example of the future direction of our brand. So all in all, we continue to gain momentum and capitalize on the creative opportunities we see across the board.”