Gap Inc. reported stronger-than-expected sales, a sign that celebrity-fueled marketing, flashy collaborations and a revamped inventory are luring in consumers.
Comparable sales rose 5 percent in the third quarter, surpassing the average of analyst estimates. Results at the company’s two biggest brands — Old Navy and Gap — were particularly strong. Earnings per share also outpaced expectations.
The shares rose 2 percent in extended trading in New York.
Chief executive officer Richard Dickson is reigniting excitement around Gap with collaborations, including with luggage brand Béis, and the GapStudio line that’s being promoted by Gwyneth Paltrow and her daughter. At Old Navy, which generated nearly 60 percent of total revenue in the quarter, the company said its denim, activewear, kids and baby categories resonated with shoppers.
Gap now sees net sales growing 1.7 percent to 2 percent this year, raising the bottom end of the projected range from 1 percent. Operating margin, a gauge of profitability that includes the impact of tariffs, is expected to be 7.2 percent — up from the previous range that had topped out at 7 percent.
Gap is attracting higher-income consumers, Dickson said in an interview. He said the company’s variety of brands and price points are helping to insulate its performance in a tougher consumer environment.
A number of companies have warned in recent weeks that consumers are spending carefully and focusing more on essential items as sentiment deteriorates and years of rising prices eat into purchasing power.
While momentum gained at Gap’s main brands, Athleta continued to struggle. Comparable sales slumped 11 percent at the sportswear chain, worse than expected. The company said it’s “beginning with a focus on the fundamentals” at Athleta, efforts that “will take time.”
“There is a lot of work to do at Athleta,” Dickson said. The newly appointed CEO of the brand, Maggie Gauger, will help reset it, he added.
The company has freshened up its assortment by adding the higher-end GapStudio line. It’s also offering non-apparel categories, with hair and body mists and lotions available at Old Navy.
By Lily Meier
With the new GapStudio line, creative director Zac Posen is introducing an edgier, fashion-forward perspective and a platform for monetising his designs on the red carpet, such a custom outfit for Timothée Chalamet.
