Gap shares rose 20% as profits rose on sales growth for all four brands

Gap saw positive comparable sales across all four of its brands on Thursday, prompting the clothing giant to raise its full-year forecast as CEO Richard Dickson’s turnaround strategy takes effect.

The retailer of Gap, Banana Republic, Athleta and Senior Navy brands beat earnings estimates and also topped revenue.

Here’s how Gap performed compared to Wall Street forecasts, based on a survey of analysts conducted by LSEG:

• Earnings per share: 41 cents against the expected 14 cents
• Income: $3.39 billion against the expected $3.29 billion

Gap shares rose more than 20% in extended trading Thursday.

The company reported fiscal first-quarter net income of $158 million, or 41 cents per share, compared with a loss of $18 million, or 5 cents per share, in the prior-year period.

Sales for the period ended May 4 rose about 3% to $3.39 billion from $3.28 billion a year earlier.

This is “the first time in many years that all four brands have shown positive results. We actually looked when they did, but it was difficult to find them,” CEO Richard Dickson told CNBC.

“We are very confident in our quarter, which has given us the confidence to raise our full-year 2024 guidance, both in terms of revenue and operating margin prospects.[…]“This continues to, if I may say so, really demonstrates our confidence that our priorities are really taking shape,” he added. “The culture is revitalized and we are delivering what we promised to our shareholders.”

Gap now expects net sales to enhance “slightly” compared to its previous forecast of remaining flat. The company expects gross margin to enhance by at least 1.5 percentage points, compared to previous guidance of at least half a percent.

The biggest change in Gap’s forecast is its operating profit forecast. It now expects operating income to be in the mid-40% growth range compared to previous expectations for growth in the low-to-mid teens.

Dickson, who took the helm of Gap in slow August, is a marketing guru who is working to revitalize the company’s portfolio of brands. His work focused on telling brand stories and putting brands like Gap and Senior Navy back at the cultural center.

Some of them have already started to appear.

Earlier this month, actress Da’Vine Joy Randolph wore a denim ball gown designed by Gap’s up-to-date original director, Zac Posen, to the Met Gala in Manhattan. A few weeks later, actress Anne Hathaway wore a white Gap shirt dress to an event at Bulgari, which was also designed by Posen.

“We were very excited to see it [Hathaway’s dress] in the market and also got to consumers so they have the opportunity to buy,” Dickson said. “We continue to believe there is interest in better storytelling through marketing and novel media.”

He told CNBC that the quarter’s success was driven by “consistency and financial and operational rigor,” adding that the company’s average selling prices have returned to pre-pandemic levels thanks to lower inventory levels leading to better sales results. But with better design and marketing, consumers simply buy more.

Here’s a breakdown of how each Gap banner performed this quarter compared to Wall Street estimates compiled by FactSet, which revised its estimates following the Gap report:

• Senior Navy: Net sales of $1.9 billion increased 5% from a year ago, while comparable sales increased 3%, versus an expected 2.3% enhance according to revised FactSet estimates. Dickson said the brand posted its “highest quarterly result in three years,” a huge win for Gap’s most crucial brand in terms of revenue. He noted that the women’s business is forceful and there are “positive results in the busy industry” – a “key category” for the company.

• Banana Republic: Sales of $440 million increased 2% from last year. Comparable sales rose 1%, well above the expected 4% decline, according to revised FactSet estimates. This enhance also comes on top of an 8% decline in the year-ago period.

• Athlete: Sales of $329 million were up 2% from last year. Comparable sales rose 5% after sinking a staggering 13% in the year-ago period. Analysts had no expectations for Athleta’s comparable sales.

• Gap: Sales of $689 million were flat compared to last year. Comparable sales rose 3%, versus an expected 2% enhance, according to adjusted FactSet estimates. “Gap’s results were primarily driven by forceful marketing and product execution around the Linen Moves campaign,” the company said.