On the retailer’s fourth-quarter conference call with analysts, Arthur Peck, CEO of Gap Inc., described Athleta’s performance in 2017 as “extraordinary,” but also indicated the Gap chain and Old Navy are also seeing strength in active and performance lifestyle.
Athleta operated 148 stores at the close of the year, up from 132 at the start. The business was established in 1998 and acquired by Gap Inc. in 2008.
“It’s hard not to have anything but positive things to say about Athleta,” said Peck on the conference call. “The brand’s performance for the year was extraordinary.”
He noted that Athleta moved from mid-teens sales growth in the first half of 2017 to mid-20s in the back half.
Said Peck, “The response and engagement we’re seeing from new and existing customers at Athleta has been outstanding, driven by the highest percentage of product and responses in our portfolio, exceptional product, powerful storytelling and a unique experience both inside and outside of our stores. The brand design is on its way to becoming known for powerful and strategic fabric innovation, particularly in bottoms.
“In 2017, new fabric information, much of it proprietary to the brands, drove a significant amount of top-line performance. The girls’ business, an increasingly important business for Athleta, more than doubled and exceeded expectations during the year. Again, given that this business was added to the portfolio with no incremental ROD and minimal expense, this growth is highly accretive.”
Peck added that the Active growth “isn’t limited to Athleta,” with the Active businesses within Gap and Old Navy delivering high single-digit growth in 2017.
Supporting that growth, in 2017 Gap Inc. created a “small, very focused innovation center” designed to help the company build a competitive advantage through proprietary technical fabrication and sustainability innovation, not only for activewear, but also for its core ready-to-wear businesses. Added Peck, “The success we’ve seen this year with innovation, such as Powervita and our Sculpt fabrication, makes me very confident and very optimistic in the potential for industry-leading innovation across the portfolio.”
Overall, Gap Inc.’s same-store sales rose 5 percent in the fourth quarter ended Feb. 3, while analysts were expecting sales to rise 1.2 percent. Among its major concepts, Old Navy led the way with a gain of 9 percent. Gap Brand was flat and Banana Republic added 1 percent.
Total revenue rose 7.9 percent to $4.78 billion, above the analysts’ estimate of $4.67 billion. Excluding certain items, earnings reached 63 cents per share in the quarter, beating the average analyst estimate of 58 cents.
For the current year, Gap expects EPS to be in the range of $2.55 to $2.70 and comparable sales are expected to be flat to up slightly. That compares to $2.13 on an adjusted basis for the just-completed year.
Said Peck, “We remain focused on balanced growth, doubling down on Active and value, accelerating our progress in digital and customer experience, rationalizing non-performing real estate and driving productivity.”
Gap Inc. overall plans to open 25 stores in 2018. Said the company’s CFO, Teri List-Stoll, “In line with our strategy, openings will be focused on the value in Active space, particularly Old Navy and Athleta, while closures will continue to be weighted towards Gap and Banana Republic.”
Last quarter, Gap announced plans to accelerate its target of 200 closures, largely in older, specially Gap and Banana Republic fleet locations, by the end of 2018, a year ahead of expectations.
Photo courtesy Athleta