Gap Inc., parent of the Athleta, Banana Republic, Gap, and Old Navy retail brands, reported that third quarter net sales grew for the fourth consecutive quarter and said it gained market share across all brands while meaningfully expanding operating margin.

Consolidated net sales across all banners totaled $3.8 billion in Q3, up 2 percent year-over-year (y/y) compared to the 2023 Q3 period. Comparable sales were up 1 percent year-over-year.

“Due to the 53rd week in fiscal 2023, in order to maintain consistency, comparable sales for the third quarter of fiscal 2024 are compared to the 13 weeks ended November 4, 2023,” the company said.

“Consistent execution of our strategic priorities, including the rigor and repetition we’re applying to our brand reinvigoration playbook, is making us a stronger company and demonstrates our continued progress in unlocking Gap Inc.’s full potential,” said company President and CEO Richard Dickson in a media release.

“Holiday is off to a strong start and we remain focused on executing with excellence in the fourth quarter,” Dickson continued. “Our performance year-to-date gives us the confidence to raise our full year outlook for sales, gross margin and operating income growth.”

Channel Summary

  • Store sales decreased 2 percent y/y in the quarter.
  • Online sales increased 7 percent y/y, representing 40 percent of total net sales for the quarter.

Comparable Sales

Banner Summary

Athleta
Athleta’s third quarter net sales of $290 million were up 4 percent compared to Q3 last year. Comparable sales were up 5 percent year-over-year. As expected, the brand returned to positive comparable sales in the quarter as its new product and marketing are said to be resonating with customers.

Banana Republic
Banana Republic reported third quarter net sales of $469 million, a  2 percent y/y increase. Comparable sales were down 1 percent year-over-year. The brand saw strength in its men’s business during the quarter and remains focused on fixing the fundamentals.

Gap
Gap banner third quarter net sales amounted to $899 million for the quarter, up 1 percent y/y compared to Q3 last year. Comparable sales were up 3 percent y/y, representing the fourth consecutive quarter of positive comparable sales at the brand. Gap’s strong product and marketing execution have helped drive continued momentum and consistent results at the brand.

Old Navy
Old Navy saw third quarter net sales inch up 1 percent y/y to $2.2 billion. Comparable sales were said to be flat for the period. The company said the brand’s continued focus on operational rigor and brand reinvigoration drove solid performance in the quarter, despite lapping tougher compares and facing weather-related headwinds.

Income Statement Summary

  • Gross margin amounted to 42.7 percent of sales in Q3, a 140 basis point improvement versus the 2023 Q3 period. Merchandise margin increased 90 basis points y/y, primarily driven by improved inventory management.
  • Rent, occupancy, and depreciation (ROD), as a percent of sales, leveraged 50 basis points versus last year’s Q3 period.
  • Operating expense was $1.3 billion.
  • Operating income was $355 million, resulting operating margin of 9.3 percent for the period.
  • The effective tax rate was 24 percent in Q3.
  • Net income was $274 million for the third quarter, or diluted earnings per share of 72 cents, for the third quarter.

Balance Sheet Summary

  • Gap Inc. ended the quarter with cash, cash equivalents and short-term investments of $2.2 billion, an increase of 64 percent from the prior-year Q3 period.
  • Year-to-date net cash from operating activities was $870 million.
  • Year-to-date free cash flow, defined as net cash from operating activities less purchases of property and equipment, was $540 million.
  • Inventory was $2.33 billion at quarter-end, down 2 percent from the third quarter-end last year.
  • Capital expenditures were $330 million for the quarter.

Gap Inc. paid a third quarter dividend of 15 cents per share, totaling $57 million. The company’s Board of Directors approved a fourth quarter fiscal 2024 dividend of 15 cents per share.

Store Breakdown
The company ended the quarter with 3,603 store locations in roughly 40 countries, of which 2,544 were company operated doors.

Fiscal 2024 Outlook
As a result of the company’s strong third quarter results, the Gap Inc. is raising its full year outlook for net sales, gross margin and operating income growth compared to prior expectations.

The company noted that full year fiscal 2023 adjusted operating income, which excludes $93 million in restructuring costs and a $47 million gain on sale of a building.

Image courtesy Athleta/Gap Inc.