New CEO Dickson leads Gap to early success, beating expectations

Dickson, Gap's new CEO, surprises with better-than-projected performance

Gap Inc. reported a third-quarter profit surpassing predictions and a smaller decrease in proportional sales, indicating an early triumph for CEO Richard Dickson in enhancing the company's operations. The India-adjusted earnings per share reached 59 cents, tripling the average analyst's prediction, primarily due to decreased promotions and better controlled stock levels. Despite a fourth consecutive quarter of falling same-store sales, the downturn was less severe than anticipated owing to strong performance at Old Navy, the company's flagship brand. This mitigated weaker results at Athleta and Banana Republic. Gap's shares increased by 6.1% in late trading in New York.

“There is ongoing work to be done on the brands, even though I am satisfied with our performance," Dickson stated in an interview. He proposed ideas such as improved marketing strategies and product assortment at Banana Republic and a more concentrated marketing initiative for women at Old Navy. Regarding Old Navy, which had sales outperforming all other company brands combined, Dickson commented that the strong response to active and bottoms business trends should be capitalized on for gaining momentum. He stressed the need for consistent execution.

The results signify critical progress in stabilizing the clothing retailer’s business amid years of volatility characterized by unexpected management exits and inventory errors. While Gap enjoyed a short-lived sales boost during the pandemic, sales have shrunk in six out of the past eight quarters, and shares have fallen almost 50% in the last two years, emphasizing the critical task facing Dickson in reviving the company.

Proportional sales at Old Navy increased for the first time since 2021, while they decreased slightly at Gap. Old Navy benefitted from a website makeover and a women's clothing campaign increasing market share, according to Dickson. Banana Republic saw an 8% proportional sales drop, while Athleta experienced a 19% decrease. At Banana Republic, efforts to reposition the company involve launching a luxury furniture range and a collaboration with designer Peter Do. "The transition from a high transactional to a premium lifestyle brand will take some time to materialize," cautioned Dickson.

Athleta, which saw the appointment of a new president and CEO in August, continued to struggle due to product, marketing, and retail execution blunders, said Dickson. “We acknowledge that the brand needs a comprehensive reset, but are confident in its long-term potential," he added. The gross margin of 41.3% improved from the previous year and surpassed analysts’ average prediction, reflecting new product sourcing policies, reduced air freight charges, favourable commodity contracts, and fewer promotions.

Gap's results align with those of other retailers like Target Corp. and Macy's Inc., both of which also showed profitability growth despite decreases in proportional sales. Other specialized clothing retailers, Abercrombie & Fitch Co. and American Eagle Outfitters Inc. are expected to announce their third-quarter results next week.