Gap Inc. said Athleta, the retailer’s women’s fitness concept, extended the company’s streak of double-digit revenue growth in the first quarter.

“I believe that this gem in our portfolio, which is becoming a very nicely sized gem, remains underappreciated,” said Art Peck, Gap Inc’s president and CEO, of Athleta on a conference call with analysts.

Athleta ended the quarter with 147 stores, closing one and not opening any in the period. There were 133 Athleta stores open at the end of the 2017 first quarter. Gap officials reiterated that openings this year will be focused on the value and active space, which are Old Navy and Athletic, while closures will continue to be weighted towards Gap and Banana Republic specialty.

Peck noted that Athleta earned B Corp Certification status that requires a business to meet rigorous standards across social and environmental performance, accountability and transparency.

“This makes Gap Inc. the largest U.S. publicly traded retail company with a B Corp certified subsidiary apparel brand,” said Peck. “Why does this matter? This matters because this is a critical component of Athleta’s strong brand identity and strong brand engagement. I’m very proud of the team, and very proud of the significant step that we’ve taken forward.”

Companywide, Gap’s earnings in the quarter rose 14.7 percent to $164 million, or 42 cents a share, missing Wall Street’s consensus target of 45 cents. Sales improved 10.0 percent to $3.8 billion. Excluding the impact from the adoption of a new revenue recognition standard related to the company’s credit card programs, net sales increased 6 percent compared with last year.

Same-store sales increased 1 percent compared to a 2 percent increase last year. The gain represented Gap Inc.’s sixth consecutive quarter of positive comp growth despite expected challenges at Gap brand.

Comps by the company’s major concepts:

  • Old Navy: positive 3 percent versus positive 8 percent last year
  • Gap: negative 4 percent versus negative 4 percent last year
  • Banana Republic: positive 3 percent versus negative 4 percent last year

Peck said Old Navy felt a “slight drag due to weather” but saw “dramatic improvement” when the weather turned late in April, and the momentum has continued into the second quarter. Denim saw the biggest comp gains, but growth came in nearly all categories. Investments are being made to increase depth in all key categories, including bottoms, knits, active, kids and baby while new categories will continue to be explored. Added Peck, “We added active a couple of years ago; that was significantly accretive to revenue and profitability.”

Banana Republic saw the company’s second consecutive quarter of positive comps as the chain continues to focus on pillar categories.

The flagship Gap chain faced heavy inventories coming into the quarter and continued to be impacted by the timing of inventory flows. Some strategic decisions were made to aggressively clear inventory through sell-off and the related margin pressures are expected to continue into Q2.

Trends at Athleta as well as Gap Inc.’s online business “remained very strong,” noted Teri List-Stoll, EVP and CFO, on the call.

Gap Inc. recorded the company’s sixth consecutive quarter of positive AUR growth, driven by Old Navy and Banana Republic. Earnings gains were held back by a merchandise margin decline of 180 basis points, the lower end of plan, largely due to the strategic decisions to clear inventories at the Gap chain.

The company affirmed full-year diluted EPS guidance to be in the range of $2.55 to $2.70. Same-store sales are still expected to be flat to up slightly.

Peck said Gap Inc’s growth strategy outlined at the company’s Investor Day meeting last fall remains unchanged.

“We’re focused on balance growth, continuing to support accelerating growth in active and value, supporting and investing in our progress in digital and accelerating the growth of our digital business, and how that connects to customer experience, rationalizing non-performing real estate and driving SG&A productivity,” Peck said.

Photo courtesy Athleta