With On-Trend Fashion And Inspired New Leadership, Gap’s Turnaround Begins

Gap Inc. and its four iconic fashion brands – Old Navy, Banana Republic, Athleta and its namesake Gap – has finally got its mojo back.

In CEO Richard Dickson’s first quarter earnings after only eight months on the job, global net sales increased 3.4% to $3.4 billion. And all four brands turned positive on a comparable basis, the first time in a decade since that happened.

Confident that he and his team are on the right track, Dickson raised full-year guidance for “slightly higher” net sales and “meaningfully higher” operating income growth in the mid-40% range.

“We are on a journey to become a high-performing 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 unlock the power of Gap Inc.”

Strong Performance Stateside

The company’s turnaround showed even greater results in the U.S. where some 60% of its stores are located and nearly 90% of sales are generated. Net sales stateside were up 5.2% to $3 billion and all four brands generated net positive growth in the states. International sales, including Canada, were off a shade over 8%, with CFO Katrina O’Connell noting in the earnings call that “global economic conditions remain uncertain and are top of mind.”

“We believe management’s focus on driving cultural relevance through limited editions and marketing is translating to financial results,” TD Cowen reported as it called out unexpected positive growth at Banana Republic – now in search of a new CEO – and Athleta, which gained market share through fabric innovation and momentum in core bottoms sales.

Cowen analysts added, “We are encouraged to see both Old Navy and Gap gaining share with strength in the Women’s business at Old Navy and encouraging results across all categories at Gap, especially Women’s driven by the success of the Linen Moves campaign.

Building The Cultural Connection Brand-By-Brand

Upon his arrival, Dickson’s first order of business was to revive each brand’s cultural relevance and clearly differentiate their unique position in the corporate hierarchy, something that got muddy under previous leadership. He observed that each brand is at a different point in that process, but he has prepared a playbook to guide execution across all fronts.

“Our products are being amplified through more compelling storytelling across each brand, cutting through with clarity and better differentiation,” he said in the earnings call. “Cultural relevance and marketing are starting to show up in metrics that matter, like buzz, consideration and brand relevance.”

To help build cultural relevance brand-by-brand, Gap Inc. has partnered with Omnicom Media Group, its new cross-brand agency of record. “No agency understands customer-centricity better than they do. And I’m thrilled to have their partnership as we evolve Gap Inc. for a new era,” Dickson said in the agency announcement early this year.

Reporting the early innings of the partnership in the earnings call, Dickson said: “This partnership is, in part, another ingredient that is going into our reinvigoration playbook, which is helping our brands communicate a much more relevant, innovative and modern narrative using a very different media mix than we have in the past and creating really compelling storytelling. It’s not about spending more. It’s really about spending more efficiently.”

Old Navy Dresses The Family In Style Within Budget

Old Navy CEO Horatio Barbeito is a fairly new member of the Gap Inc. team, having joined Old Navy in August 2022 after 26 years with Walmart. The brand is doubling down on the value space with elevated storytelling around both fashion and value.

“Old Navy is reasserting its position as the style authority in the value space, with a combination of storytelling and pricing with wow prices in-store and online,” Dickson said. “Old Navy’s brand acceptance scores for quality, impression and reputation are strong, giving us confidence.”

Appointed Old Navy creative director earlier this year, celebrity fashion designer Zac Posen has been tasked with elevating Old Navy’s fashion cred for consumers’ inflation-challenged budget. He nailed it in the brand’s new Summering campaign featuring actors Tracee Ellis Ross and Yara Shahidi looking “fabulous.” It is getting a fantastic response, Dickson shared.

Its women’s business is gaining traction and active performance wear has showed market share gains for the third consecutive quarter, where it now holds fifth place in that space.

Gap Moves With Linen And DÔEN Collaboration

The Linen Moves campaign launched for Spring 2024 has really moved the fashion needle for Gap brand. Featuring Grammy award winning artist Tyla and a team of dancers grooving to Jungle’s “Back On 74” hit song, it went viral on TikTok with over a billion views. Gap followed with a summer season linen collection featuring model Taylor Hill.

“We are reigniting the brand, working to deliver confident trend-right products that are priced right and expressed through big ideas and culturally relevant messages. Linen Moves is a great example,” Dickson said, as he reported Gap Linen sales were up double-digits versus last year.

Also generating buzz was a limited-edition 51-piece collection with DÔEN, a California fashion label founded by sisters Margaret and Katherine Kleveland and known for its feminine styling. The collaboration celebrating sisterhood featured a range of women’s fashion, along with matching kid styles, priced from $20 to $158.

Dickson suggested more such brand collaborations are coming. “Collaborations remain an important part of our brand strategy.”

Banana Republic Focused On Fashion Fundamentals

Banana Republic’s revival in the premium fashion space is a little behind that of Old Navy and Gap after it got sidetracked launching into home furnishings. That led to then-CEO Sandra Stangl’s departure and the search for a replacement continues.

Nonetheless, Banana Republic got an unexpected boost in sales with a significant improvement over the fourth quarter when comp sales were down 4%, ending the full year 7% under previous year.

Banana Republic Classics and Finest Fabrics collections performed well during the recent quarter thanks to more product depth in store and elevated marketing.

“We see a significant opportunity for Banana Republic and are working to set the stage for improved future performance under new leadership,” he said, giving no word on what’s going to happen to BR Home.

Athleta Finds Power Of She

Ending last year, Athleta, its activewear brand, was the most troubled. Comp sales were down 12% year-over-year and 10% in the fourth quarter. That all changed in the first quarter.

Athleta generated 5% global comp sales growth, though CFO O’Connell warned net sales are expected to be down mid-single digits in the second quarter as it laps heavy discounting from last year.

However, they see green shoots for the brand in Athelta’s new “Power of She” positioning with world-class athlete ambassadors Simone Biles and Katie Ledecky.

“This year has been a major step forward for women’s sports as female athletes globally are beginning to get the attention and credit they’ve long deserved,” Dickson said in the earnings call. “It’s an important cultural moment and one that we’re proud to authentically participate in as the largest athletic brand singularly focused on empowered women and girls.”

As the brand’s gateway for customers to engage with the brand, core bottoms performed well this quarter and the introduction of its PowerMove fabric also brought new business.

Tapping The Cultural Zeitgeist

Dickson has quickly grasped the need for each of its brands to express the cultural zeitgeist uniquely in a way that is authentic to each brand.

This quarter’s results show progress in the playbook and even more is expected as the creative impact of designer Zac Posen begins to be felt across the company.

Posen’s creative juices are going to be instrumental in moving Gap forward, as evidenced by his dressing actor Da’Vine Joy Randolph’s debut at the Met Gala in a show-stopping custom-made gown crafted in brand-right denim. Posen was her plus-one, dressed in an ivory poplin Banana Republic suit.

About Posen’s influence, Dickson said: “He’s focused on influencing many creative aspects within our company, obviously, most particularly 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 for some time here at Gap Inc.

“And even as recently as yesterday, Zac was intimately involved in the launch of our new Banana Republic flagship in Soho, which by the way, is an amazing portrayal of our brand’s future direction. So all-in-all, we’re continuing to gain momentum unlocking the creative opportunities that we see across the board.”

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