Pedestrians walk past Old Navy and GAP stores in Times Square, New York City.

Drew Angerer | Getty Images

Gap on Thursday reported mixed results and disappointing guidance for the current quarter, as the longtime mall retailer warned of an “uncertain consumer” and reported another quarter of falling sales across all four of its brands.

The company expects net sales to decline in the low double-digits for the fiscal third quarter, compared to last year’s net sales of $4.04 billion. According to Refinitiv estimates, analysts had expected sales to fall 6.8% in the third quarter.

For the three-month period ended July 29, Gap’s bottom line beat Wall Street’s estimates but fell below the high end.

Here’s how the apparel retailer performed in the fiscal second quarter versus Wall Street expectations, based on a Refinitiv analyst poll:

  • Earnings per share: 34 cents, adjusted, vs. 9 cents expected
  • Revenue: $3.55 billion vs. $3.57 billion expected

The company’s reported net income for the quarter was $117 million, or 32 cents a share, compared to a loss of $49 million, or 13 cents a share, a year ago. Excluding one-time restructuring charges, Gap reported net income of 34 cents per share.

Revenue declined 8% to $3.55 billion compared to $3.86 billion a year earlier, representing a sharper year-over-year decrease in revenue than the fiscal first quarter. On a two-year basis, sales fell by 15.7%.

Gap’s business has been under pressure for several quarters as the company struggles to retain market share and regain the relevance that once characterized it against a difficult macro backdrop.

“Anxious Consumer”

During a phone call with analysts, executives repeatedly spoke of the “weak apparel environment,” “choppy consumer market,” and a “squeezed” audience.

Those pressures are being felt at its biggest revenue generator, Old Navy, as its low-income clients cut back on spending amid high inflation, interest rates, and the threat of student loan payments resuming.

“We are all aware of the mixed economic data and uncertain consumer trends in the market, including new momentum in student loan repayments beginning in the third quarter,” CFO Katrina O’Connell said in a call with analysts. “As such, we remain cautious in our planning approach given the still uncertain macroeconomic environment and unsettled consumer environment.”

Old Navy sales declined 6%, on top of a sharp 13.6% decline in the year-ago period.

“Old Navy’s core purchasing family is under significant financial pressure and has cut spending, but not nearly to this extent. That means part of Old Navy’s problem is that its shoppers are migrating to shop elsewhere.” Retail analyst and GlobalData chief executive Neil Saunders said of the results. “While some of this is due to people looking for cheaper alternatives, some is also a result of Old Navy’s dull ranges and styles.

“In our view, the brand has lost its edge and is producing more of the same season after season, rather than following trends,” he added. “Combined with a more cautious consumer, this is a losing combination.”

According to StreetAccount, company-wide same-store sales fell 6% in the quarter, while analysts had expected comparable sales to fall 4.4%.

According to Gap, gross margins, which have risen over the past two quarters, rose 3.1 percentage points to 37.6%, reflecting lower air freight costs and a slowdown in discounts. It expects gross margins to continue to grow throughout the fiscal year.

At Gap’s mid-fiscal year, the retailer expects sales to fall in the mid-single-digits year-over-year, according to Refinitv, in line with analysts’ expectations.

The report comes two days after Richard Dickson took office as Gap’s new CEO. The former Mattel executive, who took up his new role on Tuesday, is a branding expert who ran Mattel’s Barbie franchise. Gap is counting on Dickson to breathe new life into Gap’s brands: the eponymous banner Old Navy, Banana Republic and Athleta.

brand results

All four brands, which have very different ranges and customer bases, have seen their sales decline quarter after quarter and this trend is continuing.

Here’s a closer look at how they fared in fiscal second quarter:

Old Navy: The budget apparel retailer saw both revenue and comparable sales decline 6% to $1.96 billion. Its target customer, the low-income consumer, shopped less during the quarter and sales in its active category were slow. The brand saw bright spots in women’s tops and woven bottoms, as well as uptrends in men’s and children’s clothing.

Gap: Revenue for the eponymous banner fell 14% year over year to $755 million. The brand was under pressure from the closure of Yeezy Gap and the sale of Gap China. Sales in the women’s category were strong but offset by store closures in North America. Comparable sales decreased 1%.

Banana Republic: Revenue declined 11% year over year to $480 million, while comparable revenue declined 8%. The brand surpassed the outsized growth of recent quarters as it saw a surge in demand from shoppers who suddenly needed clothes for work and going out once the Covid pandemic had abated. The brand is in a period of upheaval and recently launched a homewares category that includes premium bedding, rugs and decor. More will be added this fall.

Athlete: The sportswear brand posted sales of $341 million. While sales declined just 1% compared to the prior-year period, comparable sales declined 7%. For the third straight quarter, Gap failed to meet Athleta customers’ expectations as the brand continued to struggle with finding the right product lineup. Chris Blakeslee was recently appointed CEO. Most recently, he was president of Athleta competitor Alo Yoga and its sister company Bella+Canvas.

“We’re seeing encouraging signs of progress as our teams streamline the way we work so we can focus on growth-enhancing initiatives,” Dickson said in a release. “This means we need to do things differently, with a clear focus on redefining what our brands mean to consumers, focusing on creativity, designing relevance as a pursuit rather than a goal, and capitalizing on our remarkable heritage to create an exciting new future.”

Those signs of progress include a “fairly good” start to school and a 29% year-over-year drop in inventories, O’Connell said.

Despite sluggish sales at Gap brands, the chief financial officer insisted that banners either “maintained or gained” market share during the quarter, citing strength in the women’s category.

“We know that regardless of market conditions, strong brands, brands that matter, win,” said O’Connell. “That’s why we continue to focus on the levers and opportunities we have to deliver on behalf of our customers, employees and shareholders.”


In his first earnings call as Gap’s CEO, Dickson spoke repeatedly about the importance of the retailer’s brands and how his efforts will focus on reviving them.

“Our brands are important, but they can be even more important,” Dickson said.

“In my experience, our teams on the board and certainly on site for three days are incredibly creative and fully committed. They differentiate and strengthen our brands, are design-led, customer-focused, and ultimately culturally relevant.”

Still, he acknowledged that “restructuring is challenging” and that changes will not come quickly.

Gap chairman Bob Martin, who served as interim CEO for more than a year prior to Dickson’s appointment, had worked to restructure both the business and management organization so that the new CEO could hit the ground running as soon as he arrived.

Over the past year, Gap has shed more than 2,000 employees, or about 25% of its corporate functions, increasing the number of direct reports for each manager from two to four and reducing management tiers from 12 to eight, the company previously announced. The goal of the cuts was to cut red tape and bureaucracy to allow Gap more flexibility in decision-making and to focus on its creative endeavors.

The layoffs will save Gap approximately $300 million, the first half of which will accrue in fiscal 2023. For the quarter ended April 29, Gap’s margins increased 5.6 percentage points year over year to 37.1%. That news propelled the stock higher in aftermarket trading, despite another quarter of sales falling.

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