While the athleisure chain saw some softness in swim, Athleta again churned out strong results in the second quarter for Gap Inc. Art Peck, Gap Inc.’s president and CEO, on a conference call with analysts, said Athleta “delivered another market share gaining quarter and is progressing well against our billion dollar sales objective.”
Excluding swim, the rest of Athleta’s continued to see double-digit comp trends.
Said Peck, “This brand continues to excel in engaging and connecting with new and existing customers. And in Q2, the new customer growth rate continued to accelerate, a sign of a healthy, solid growth brand.”
He noted that Athleta saw “some softness” in swim in the period but said the chain is “largely out” of the category for the back half of the year. He added, “From an execution perspective, we used our responsive capabilities to pivot in-season to the high-growth bottoms business. In fact, the bottoms business, which represents nearly half the assortment, delivered a high-teens comp during the quarter.”
Gap Inc. officials have noted that Athleta has been particularly benefitting from the company’s quick-turn capabilities.
Athleta’s performance in girls, first launched in early 2016, “has been nothing less than phenomenal, and they’re playing in the back-to-school space this year.” The brand recently released the Stay in the Game campaign, emphasizing girls’ confidence-building through sports and activities.
Athleta added seven locations in the quarter to end with 154. Teri List-Stoll, Gap Inc.’s EVP and CFO, said the company opened 37 new Athleta and Old Navy stores overall year-to-date with plans to nearly double that number in the back half.
Companywide, net earnings rose 28.6 percent to $297 million, or 76 cents a share, from an adjusted $231 million, or 58 cents, in the year-ago period. Earnings topped Wall Street’s consensus estimate of 4 cents. After an unusual gain, net earnings in the year-ago period were $271 million, or 68 cents.
Net sales for Gap Inc. rose 7.5 percent to $4.09 billion, beating a forecast by analysts for $4.01 billion. Comparable-store sales increased 2 percent, representing the company’s seventh consecutive quarter of positive comp growth.
Old Navy continued to drive results for Gap Inc. with comps ahead 5 percent after climbing 5 percent in the year-ago quarter. List-Stoll said, “We continue to see broad-based strength in the business, with growth across all divisions in nearly every category. The engine of the brand share growth is the momentum in our loyalty categories: denim, kids, baby, active.”
Peck said Old Navy remains the market share leader in dresses, knits, shorts and pants and ranks as the second largest apparel brand in the U.S. Peck added, “We’re seeing incredible strength in brand health metrics, and Old Navy is continuing to pace towards our $10 billion net sales goal with store traffic outpacing the industry and up again for the quarter.”
However, share of Gap Inc. on Friday were down 10 percent in mid-day trading as the flagship Gap chain disappointed, showing a 5 percent decline during the second quarter on top of a negative 1 percent in the year-ago quarter. Neil Fiske, who formerly led Billabong, was recently hired to head up the namesake brand, with the goal of increasing the frequency of new styles and better targeting customers. Improving Gap’s supply chain continues to be a key focus for the company.
“As I’ve said, we will see continued improvement at Gap Brand as we move through the year, and that remains the view,” Peck said on the call. “Quarter by quarter, we expect performance to improve and we believe the worst is behind us.”
Banana Republic’s comps grew 2 percent in the quarter, rebounding from a decline of 5 percent last year.
Gap Inc. reaffirmed the company’s guidance for the year, expecting earnings in the range of $2.55 to $2.70. That compares to adjusted earnings of $2.13.
Photo courtesy Athleta
