Athleta’s same-store sales were down in the second quarter for the third quarter in a row but showed improvement sequentially with sales of performance bottoms accelerating. On its analyst call, Gap, Inc. officials expressed confidence in the ability of Athleta’s new leadership team, led by former Alo Yoga’s president Chris Blakeslee, to guide the continued recovery.
Blakeslee was president of Alo Yoga and its sister brand Bella+Canvas from October 2017 until he took over as Athleta’s president and CEO this August. Under Blakeslee’s tenure as president, Alo Yoga reported $1 billion in sales in 2022. Before Alo Yoga, he held senior positions at Broder Brothers (now Alphabroder).
“As a member of the Board, I had a chance to get to know Chris and help select him for this role,” said Richard Dickson, Gap’s new CEO, on the analyst call “He’s an exceptional talent, broad-based experience across the apparel retail and wholesale industries holding roles across multiple functions. As the recent president of Alo Yoga, he was really able to successfully and quickly grow that brand, nearly doubling its year-over-year growth and with extraordinary expertise in performance apparel.”
Dickson, who was formerly Mattel’s president and COO, added, “We couldn’t be more enthusiastic about the team that Chris is leading and their recent efforts and we’re really looking forward to the accelerated progress that we intend on making with this brand.”
Athleta’s sales were $341 million in the second quarter, down 0.9 percent from the prior year. Comparable sales were down 7 percent, improving from a decline of 13 percent in the first quarter.
Blakeslee’s hiring comes following the exit of Mary Beth Laughton, Athleta’s president and CEO, in March after a string of subpar quarters. Laughton has led Athleta since October 2019. In 2022, Athleta’s comps were down 5 percent, including a decline of 4 percent in the fourth quarter.
Gap has blamed Athleta’s softness in part on a general slowdown in athleisure following a spike in the earlier stages of the pandemic, but also admitted the brand faced some product missteps, including color, print, and pattern misses as well as overly-emphasizing lifestyle pieces in a shift away from its roots in performance wear.
Katrina O’Connell, CFO, said Gap was encouraged by Athleta’s strength in performance styles in the second quarter.
“Sales in core performance bottoms, the critical backbone of Athleta’s assortment, accelerated throughout the quarter and outperformed total brand sales,” she said on the call. “The work the team has been doing to improve product presentation, customer experience, and creative in the short term, optimizing online marketing, site merchandising, and resetting store floors in key markets emphasizes the performance DNA that Athleta is known for.”
She said the nearly $1.5 billion women’s active brand still has strong growth potential. She noted that Athleta’s positioning, marked by the “Power of She” messaging around empowering women and girls, “is as relevant and impactful as ever.”
“The ‘Power of She’ positioning is incredibly strong,” she added. “And we feel like we have a lot of white space in that brand to win.”
O’Connell added said the Athleta team “has been heads down working on” fixing the near-term product execution issues although the progress won’t be evident until 2024. She said, “For fall, there’s not a lot of change to the product that the teams have been able to do, but they’ve been remerchandising the stores and the site and hopefully, if you’re a consumer, you see that it looks much more in line with the brand aesthetic.”
She noted that Athleta’s new leadership also includes the recent hire of Julia Leach, formerly chief brand officer at La DoubleJ, the Milan-based trendy women’s fashion brand, as chief creative officer. She was likewise optimistic that Blakeslee and Leach will “ bring their experience to bear on the brand starting in the fourth quarter and then really into next year. So, we’re very excited about Athleta’s potential long term, and we know we’re just sort of going to get through the next quarter or two as we make the changes we can to the assortment we have.”
Companywide, Gap reported earnings that topped analyst targets but sales fell short with declines in its other three banners, the flagship Gap chain, Old Navy and Banana Republic, as well. Sales guidance for the year was slightly lowered.
Net income for the quarter was $117 million, or 32 cents per share, compared with a loss of $49 million, or 13 cents, a year earlier. Excluding one-time restructuring costs, net income of 34 cents beat the 9 cents expected.
Sales dropped 8 percent to $3.55 billion, just below the $3.57 billion expected. Same-store sales were down 6 percent at Old Navy, 1 percent at the Gap chain and 8 percent at Banana Republic.
O’Connell said sales came in line with internal plans despite the “weak apparel environment” and each of its brands maintained or gained share “even in a choppy consumer market” with strength across women’s offerings. Still, she warned of continued pressures with Old Navy, its largest division that’s exposed to low-income consumers who are being particularly impacted by high inflation and interest rates.
“We are all well aware of the mixed economic data and uncertain consumer trends in the marketplace, including the new dynamic regarding student loan repayments beginning in the third quarter,” said O’Connell. “As a result, we continue to be prudent in our approach to planning in light of what remains an uncertain macro environment and choppy consumer backdrop.”
For the year, Gap now anticipates 2023 sales could decrease in the mid-single digit range versus former guidance in the low to mid-single digits. Third-quarter sales are expected to decline in the low double-digit range. The company continues to expect gross margin expansion for the year.
Dickson, who joined Gap on Tuesday and joined Gap’s board in November 2022, noted that Gap’s portfolio of brands has a strong affinity with consumers.
“Our brands draw 600 million visits to stores, and 1.4 billion to our sites online each year, making Gap Inc. the #2 player in US apparel e-commerce,” said Dickson. “These customers, across multiple generations, turn to Old Navy, Gap, Banana Republic and Athleta to help them step out everywhere from schools and studios to offices and date nights. So, our brands matter. But they can matter even more.”
He believes the brand’s teams are making progress at “differentiating and strengthening our brands, being design-centric, being customer-obsessed and ultimately being culturally relevant,” but also acknowledged that “restructuring is challenging and that change of this magnitude doesn’t come fast.”
Photo courtesy Athleta
