Gap Offers Guidance for Holiday Sales Following Storms and Warm Weather

• Gap announced its guidance for the holiday shopping season, stating a "strong start" to the fourth quarter.
• Despite a challenging quarter due to unseasonably warm weather and hurricanes, the apparel giant, which owns Old Navy, Banana Republic, Athleta, and its namesake brand, surpassed Wall Street's earnings estimates.
• Under CEO Richard Dickson, Gap is undergoing a turnaround and is focusing on improved marketing to enhance its cultural significance.

Despite the impact of hurricanes and unseasonably warm weather on sales during its fiscal third quarter, the apparel company still managed to exceed expectations and raised its annual guidance for a third time this year.

Gap, which owns Old Navy, Banana Republic, Athleta, and its namesake banner, has revised its sales forecast for fiscal 2024 to be between 1.5% and 2%, surpassing its previous guidance of "up slightly." This is ahead of the 0.4% growth that LSEG analysts had predicted, indicating a positive outlook for the holiday shopping season, which has already begun.

The company expects its gross margins to increase and operating income to grow beyond its initial projections.

Based on a survey of analysts by LSEG, how did the nation's largest specialty apparel retailer perform compared to Wall Street's expectations?

• Earnings per share: 72 cents vs. 58 cents expected
• Revenue: $3.83 billion vs. $3.81 billion expected

Gap's net income for the three-month period ending November 2020 was $274 million, or 72 cents per share, compared to $218 million, or 58 cents per share, in the same period a year earlier.

Sales increased by approximately 2% to $3.83 billion from $3.78 billion the previous year.

During the quarter, unseasonably warm weather negatively impacted Across Gap's sales by about 1 percentage point, while storms and hurricanes led to an overall decline in store sales of 2%, CEO Richard Dickson revealed in an interview with CNBC.

Dickson stated that the unusual circumstances, including hurricanes and storms, resulted in nearly 180 closures at the peak of the impact. He also mentioned that Old Navy, Gap's largest brand by revenue, was affected the most by these storms.

As soon as the weather improved, sales "surged" and the holiday shopping season is off to a "great start" so far, said Dickson.

"We are excited about the holiday. Our teams are highly focused on executing our plans. In comparison to last year, our brands are in a much more prominent position. We have stronger brand identities and are more skilled in our playbook, resulting in better products, pricing, relevance, consumer experience, and execution excellence."

Dickson has been working to revive Gap since he took over as CEO a year ago. He has focused on nostalgic marketing and celebrity partnerships to regain cultural significance. Despite four consecutive quarters of sales growth, Gap is still smaller than it used to be, and some critics argue that it needs to improve its product selection and increase full-price sales.

Here's a closer look at each brand's performance:

Gap reported that sales at its largest brand, Old Navy, increased by 1% to $2.2 billion, although comparable sales were flat, falling short of the 0.9% growth predicted by analysts, according to StreetAccount. The kids category was particularly affected by the warmer weather, as stated by Dickson.

During the quarter, Gap's revenue increased by 1% to $899 million, surpassing the 2.3% growth that Wall Street predicted. The brand has experienced four consecutive quarters of positive comparable sales, thanks to improved marketing and product offerings.

Sales for Banana Republic's trendy workwear line increased by 2% to $469 million, despite comparable sales falling 1%, slightly worse than the 0.8% drop predicted by StreetAccount. The brand has been working to improve its men's business, which contributed to the quarter's results. Despite this, the company remains focused on improving its fundamentals.

Gap's athleisure brand, Athleta, experienced a 4% increase in sales to $290 million, while comparable sales were up 5%. However, the results did not meet expectations. In the previous year, comparable sales at Athleta were down 19%. With Chris Blakeslee, the former CEO of Alo Yoga, at the helm, the brand has managed to reverse its fortunes.