Old Navy returns to growth as Gap's holiday earnings blow past estimates

Core Insights - Gap Inc.'s Old Navy returned to growth for the first time in over a year, with sales increasing by 6% to $2.29 billion during the holiday quarter, exceeding Wall Street expectations [1] - The overall gross margin for Gap surged by 5.3 percentage points to 38.9%, driven by fewer markdowns and lower input costs, surpassing the expected gross margin of 36% [1] - The company reported a net income of $185 million, or 49 cents per share, compared to a loss of $273 million, or 75 cents per share, a year earlier [1] Financial Performance - Gap's total revenue for the fourth fiscal quarter was $4.3 billion, slightly up by 1% from $4.24 billion a year earlier, aided by a 53rd week in fiscal 2023 [2] - Comparable sales were flat, while in-store sales rose by 4% and online sales decreased by 2%, accounting for 40% of total revenue [2] - The retailer reduced inventory by 16% during fiscal year 2023 and aims to maintain full-price selling [2] Strategic Direction - CEO Richard Dickson emphasized the need for Gap to regain its cultural relevance and move beyond being just a clothing retailer [3] - The company is cautious about its outlook, expecting flat sales in the current quarter and for the full year, amid an uncertain consumer environment [4] - Dickson highlighted the importance of innovative marketing and new product offerings to drive traffic and sales [5] Brand Performance - Old Navy's sales increased by 6% to $2.29 billion, with comparable sales up by 2%, outperforming estimates [8] - Gap's sales decreased by 5% to $1.01 billion, impacted by the sale of its China business, but comparable sales rose by 4% [9] - Banana Republic's sales fell by 2% to $567 million, while Athleta's sales declined by 4% to $419 million, with both brands facing challenges in regaining momentum [9] Leadership Changes - Gap appointed fashion designer Zac Posen as chief creative officer for Old Navy, aiming to enhance the brand's storytelling and cultural relevance [6] - The company has also made key executive hires, including Eric Chan as chief business and strategy officer and Amy Thompson as chief people officer [6] - Athleta's new CEO, Chris Blakeslee, has initiated a recovery strategy, leading to early successes in new product offerings [8]