A general view of an Old Navy store.
Gap Inc.
Gap’s largest banner Old Navy returned to growth for the first time in more than a year during its holiday quarter as the retailer delivered earnings on Thursday that came in well ahead of Wall Street’s expectations.
Sales at Old Navy grew 6% to $2.29 billion, and Gap’s overall gross margin surged 5.3 percentage points to 38.9% thanks to fewer markdowns and lower input costs. Analysts had expected a gross margin of 36%, according to StreetAccount.
Shares of Gap jumped about 9% in extended trading following the report.
Here’s how the retailer did in its fourth fiscal quarter compared with what Wall Street was anticipating, based on a survey of analysts by LSEG, formerly known as Refinitiv:
- Earnings per share: 49 cents vs. 23 cents expected
- Revenue: $4.3 billion vs. $4.22 billion expected
The company’s reported net income for the three-month period that ended February 3 was $185 million, or 49 cents per share, compared with a loss of $273 million, or 75 cents per share, a year earlier.
Sales rose slightly to $4.3 billion, up about 1% from $4.24 billion a year earlier. Like other retailers, Gap benefited from a 53rd week during fiscal 2023 and without it, sales would’ve been down during the quarter. The extra week contributed about four percentage points of growth during the fiscal fourth quarter, the company said.
Comparable sales during the quarter were flat, compared to estimates of down 1.1%, according to StreetAccount. In-store sales were up 4% while online sales decreased 2% and represented 40% of total revenue.
The retailer decreased inventory by 16% during fiscal year 2023, and with those levels now in check, Gap is working to hold the line on promotions and drive full price selling.
During the quarter, Gap saw higher average selling prices across all of its brands, and it expects to grow its gross margin by at least a half percentage point in fiscal 2024.
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