<span style="color: #757575;">Athleta’s same-store sales slumped 8 percent in the second quarter due to a demand shift from athleisure to occasion and work-based categories as well as some fashion miscues on spring/summer product. On an analysts’ call, Bobby Martin, interim CEO of Athleta’s parent, Gap, Inc., remained confident Athleta would return to its mid-teens growth target.

“We believe Athleta has tremendous growth potential as it continues to drive brand awareness and establish authority in the active market,” said Martin. “However, we are experiencing softness in the near term. We are quickly pivoting and reacting to meet her needs with performance lifestyle products while remaining true to our DNA.”

Martin added, “That said, we continue to see a path toward delivering a mid-teens revenue CAGR over the long term as we capitalize on the continued secular shift and growth in the health and wellness categories broadly.”

Athleta’s total sales grew 1 percent to $344 million in the quarter as the chain grew its store count to 344 from 341 a year ago. The 8 percent comp decline was going against a gain of 13 percent year-over-year in Q221 and a 19 percent year-over-year gain in Q220.

Gap had warned during its first-quarter conference call that Athleta’s growth could moderate over the next few quarters due to a weakening in the active category.

Katrina O’Connell, EVP and CFO, noted that Athleta posted an increase of over 37 percent in sales compared to 2019 pre-pandemic levels, reflecting the brand’s continued progress in raising awareness and establishing itself as a go-to brand in the women’s active category.

“As we stated last quarter, we are focused on ensuring that Athleta strikes the right balance of active and lifestyle in its assortment mix to best meet the evolving consumer demand, which has shifted from athleisure toward work and occasion in the short term,” said O’Connell. “While there has been a modest slowdown in the women’s athleisure category, and Athleta is maintaining share in that market, we expect market share gains. We believe we had some print and color misses in our summer assortment, which drove some of the softness in the quarter.”

She added, “The team has pivoted quickly to deliver a more cohesive color story across its assortment, including more elevated prints, and higher penetration of on-trend styles this fall, which will better position the brand in the back half. We are confident that the brand will capitalize on the continued secular shifts in growth in the health and wellness categories broadly, and drive outsized growth over the long term.”

Gap also said Athleta continues to plan to add 30-to-40 stores in 2022.

<span style="color: #757575;">In the Q&A session of the call, O’Connell stressed that Athleta is gaining share in a softer athleisure market. She said, “According to NPD, the women’s athleisure market in the quarter did slow. And Athleta did maintain share.”

O’Connell also noted that part of the challenges facing Athleta is that about half of its inventory is sourced from Vietnam, a region facing pandemic-related lockdowns last year. She said, “The supply chain issues from the back half of last year did continue to impact the performance in the first half of the year, whether it was late product or assortment imbalances that resulted from that that all did play through their performance as well.”

She also said the “some print and color” schemes didn’t resonate with the consumer and that’s being addressed.

“The team has definitely acknowledged that,” said O’Connell. “And as you look toward the fall merchandise, I think it’s a more focused assortment and a more balanced assortment with great product in the performance area that they need to be delivering, as well as really versatile product in the lifestyle area that we know they’re using for some of the work and ability to sort of do everything in addition to working out. So we feel good about the actions they’ve taken and know that they’ll navigate through this shifting consumer and the supply chain issues over the long term.”

Martin added, “I think the real highlight there is it is product. And, again, the fall product hitting soon and just underline again, my confidence as well that the balance with performance, lifestyle, as well as we commented on saying toward to the DNA of that brand, I think we’ll see results turn around the way we want them to. So we’re eager to get into that.”

Companywide, the big news was that Gap had withdrawn its previous guidance for the year given the search for a new CEO, actions being taken to rightsize its inventory and cost structure, as well as the uncertain macro-environment. O’Connell noted, “The intensifying promotional background and signs of weak demand in the low-income consumer are making forecast precision increasingly difficult.”

On July 11, Sonia Syngal abruptly stepped down as president and CEO. She had been in the role since March 2020 and formerly ran Old Navy. Martin is also the Gap’s executive chairman of the board.

Gap’s overall second-quarter results were largely in line with analyst targets.

Gap Inc.’s sales reached $3.86 billion, down 8 percent compared to last year. Wall Street’s consensus estimate had been $3.82 billion. Comparable sales were down 10 percent year-over-year. Among its other banners, comps declined 15 percent at Old Navy and 10 percent in North America at the flagship Gap chain. Comps at the Banana Republic were up 8 percent.

Gap’s reported net loss was $49 million, or 13 cents a share, and its adjusted net income came to $30 million, or 8 cents. Adjusted earnings exclude inventory impairment write-offs and a charge related to Grupo Axo becoming Old Navy’s distributor for the Mexican market. Adjusted earnings topped Wall Street’s consensus estimate that had called for a loss of 5 cents a share.

O’Connell elaborated on numerous actions Gap is taking to help the business recover, including sequentially reducing inventory through the second half, impairing unproductive inventory and reducing future receipts, rebalancing assortments, reducing overhead costs, reevaluating technology and marketing spend, and fortifying its balance sheet.

“We have four strong brands and leverage in the portfolio that will enable us to compete and win,” said the CFO. “However, the current execution challenges, combined with our volatile operating environment, are requiring us to move swiftly to manage the levers in our control and take the actions necessary to drive immediate and long-term improvements across our entire business.”

Photo courtesy Athleta