In its third-quarter earnings report, Gap Inc. has exceeded expectations and showcased early success under the leadership of CEO Richard Dickson. The company reported adjusted earnings of 59 cents per share, which tripled the average analyst estimate. This impressive performance was largely driven by improved inventory management and a reduction in promotions.

While same-store sales declined for the fourth consecutive quarter, the decline was less than anticipated. The stronger results at Old Navy, Gap’s largest brand, helped offset weaknesses at Athleta and Banana Republic.

CEO Richard Dickson expressed satisfaction with the company’s performance but acknowledged the need for further work on the brand. He outlined plans to enhance marketing and product mix at Banana Republic, as well as a more targeted marketing effort towards women at Old Navy. Dickson highlighted the positive response to the active and bottoms business at Old Navy and emphasized the importance of consistency in execution.

These results mark a significant milestone in Gap’s efforts to stabilize its business, following a period of turbulence characterized by management changes and inventory missteps. Although the company experienced a brief surge during the pandemic, sales have declined in six of the last eight quarters. The fact that Gap’s shares have also lost nearly 50% of their value in the past two years underscores the urgency for Dickson to turn the company around.

Old Navy saw an increase in comparable sales for the first time since 2021, attributed to a website refresh and a successful women’s apparel campaign. However, Banana Republic reported an 8% decline in same-store sales, while Athleta experienced a 19% decline. Banana Republic is currently undergoing a repositioning strategy, including the launch of a luxury furniture line and a collection with designer Peter Do. Athleta, which appointed a new president and CEO in August, continues to face challenges due to missteps in product, marketing, and retail execution. Despite these challenges, Dickson remains optimistic about the long-term momentum of the brand.

Gap’s gross margin improved to 41.3%, surpassing analysts’ estimates. This improvement can be attributed to new product sourcing strategies, lower air freight prices, favorable commodities contracts, and decreased promotional activity. Gap’s results are in line with other retailers, such as Target Corp. and Macy’s Inc., which have also reported profitability improvements despite quarterly declines in same-store sales. At this time, the third-quarter results of other specialty apparel retailers, including Abercrombie & Fitch Co. and American Eagle Outfitters Inc., have yet to be reported.

Useful links:
– Gap Inc. Investor Relations:
– Gap Inc. Newsroom: