Gap, Inc. announced that Mary Beth Laughton, president and CEO of Athleta is exiting the business, effective today. The change comes as the women’s active apparel chain’s fourth-quarter comparable sales fell 5 percent in the fourth quarter, driven by continued product acceptance challenges.
Fourth quarter net sales at Athleta of $436 million were down 1 percent compared to last year.
“We believe Athleta has incredible potential, but it has suffered from product acceptance challenges over the past several quarters. As we look to capitalize on this potential and remain competitive amidst a dynamic landscape, we believe now is the right time to bring in a new leader who can position Athleta for long-term success,” said Bob Martin, Gap, Inc. executive chairman and interim CEO, in a statement. “I want to thank Mary Beth for her leadership and commitment to igniting the limitless potential of women and girls.”
While a search is underway, Martin will work closely with the Athleta team to lead through this transition until a new brand president is identified.
Laughton took over as president and CEO of Athleta in October 2019. She was most previously EVP of Omni retail for Sephora U.S. and had formerly spent nine years at Nike, in a variety of roles including general manager of e-commerce for Europe and the director of e-commerce for Nike subsidiaries, including Cole Haan, Converse and Hurley.
She replaced Nancy Green who left to head Old Navy.
Companywide, net sales reached $4.24 billion, down 6 percent compared to last year, inclusive of an estimated 1-point foreign exchange headwind. Net sales were in-line with the company’s expectations for mid-single-digit declines in the quarter.
Comparable sales down 5 percent year-over-year. Store sales decreased 3 percent compared to last year. Online sales decreased 10 percent compared to last year and represented 41 percent of total net sales.
By concept outside Athleta:
- Old Navy: Fourth quarter net sales of $2.2 billion were down 6 percent compared to last year. Comparable sales were down 7 percent. Performance was driven by demand softness from the lower-income consumer and in the kids and baby category partially offset by strength in the women’s category. As stated last quarter, the company believes that Old Navy pulled forward sales from the fourth quarter to October as a result of its efforts to get out earlier than typical with its first holiday promotional event, which also impacted growth in the quarter.
- Gap: Fourth quarter net sales of $1.1 billion were down 9 percent compared to last year. Fourth quarter comparable sales were down 4 percent. North America comparable sales were down 5 percent in the fourth quarter. The shutdown of Yeezy Gap negatively impacted growth in North America by approximately 2 percentage points. Performance was driven by softness in the kids and baby category offset by strength in the women’s category.
- Banana Republic: Fourth quarter net sales of $578 million were down 6 percent compared to last year. Fourth quarter comparable sales were down 3 percent driven by softness in outerwear and sweaters as well as its holiday gifting assortment. While dresses and suiting drove comp growth in the quarter, the company remains mindful of the fact that BR has been a beneficiary of the shift in consumer preferences to the occasion and work-based categories as people go back to work and events post-COVID.
Gross margin was 33.6 percent, deleveraging 10 basis points versus last year. Merchandise margin increased 20 basis points versus last year as higher discounting and inflationary commodity price increases were offset by lower air freight expense. Rent, occupancy, and depreciation (ROD) deleveraged 30 basis points versus last year primarily due to lower online sales in the quarter.
Operating loss was $30 million; operating margin of negative 0.7 percent.
Net loss of $273 million; diluted loss per share of $0.75, missing Wall Street’s consensus estimate calling for a loss of 46 cents.
Fiscal 2022 Financial Results
Net sales of $15.6 billion, down 6 percent compared to last year, inclusive of an estimated 1-point foreign exchange headwind. Comparable sales are down 7 percent year-over-year.
Reported operating loss was $69 million with a reported operating margin of negative 0.4 percent. Adjusted operating loss was $6 million, excluding impairment charges primarily related to inventory, $35 million in costs related to the transition of Old Navy Mexico, and an $83 million gain on sale related to a UK distribution center; adjusted operating margin of 0.0 percent.
Reported net loss was $202 million with a reported diluted loss per share of $0.55. Adjusted net loss was $145 million, excluding the impairment charges, costs related to the Old Navy Mexico transition, and gain on sale; adjusted diluted loss per share of $0.40.
Fiscal 2023 Outlook
“We moved swiftly in fiscal 2022 to manage the levers in our control and took action to drive immediate and long-term improvements in our business during what proved to be a challenging year. While we are better positioned as we enter fiscal 2023, we continue to take a prudent approach to plan and manage our business in light of the continued uncertain consumer and macro environment,” said Katrina O’Connell, Executive Vice President and Chief Financial Officer, Gap Inc. “We are confident that our continued actions to further optimize our operating model and cost structure are key steps toward positioning Gap Inc. back on its path towards sustainable, profitable growth and delivering value for our shareholders over the long term.”
The company’s outlook takes into consideration the continued uncertain consumer and macro environment.
The company is estimating that first-quarter net sales could decrease in the mid-single digit range compared to last year’s net sales of $3.5 billion. The sale of Gap China to Baozun closed on January 31, 2023. First quarter 2022 net sales included approximately $60 million in sales for Gap China.
The company anticipates that fiscal 2023 net sales could decrease in the low to mid-single-digit range compared to last year’s net sales of $15.6 billion. Fiscal 2022 net sales included approximately $300 million in sales for Gap China. Fiscal 2023 will include a 53rd week estimated to positively impact net sales by $150 million.
The company expects the first quarter and fiscal 2023 gross margin expansion compared to the prior year. At the estimated level of sales described above, the company is planning SG&A of approximately $1.2 billion in the first quarter and approximately $5.2 billion in fiscal 2023.
The company anticipates fiscal 2023 capital expenditures in the range of $500 million to $550 million reflecting lower technology project investments as well as fewer store openings.
Photos courtesy Athleta