Gap Inc. (NYSE:GAP) shares jumped about 13% Friday, the day after the apparel retailer reported fiscal second-quarter results and nudged its full-year profit outlook higher. The market liked the margins, the raised guidance, and news of a new leader for the company’s biggest brand.
But the quarter was more lopsided than a pop like that suggests. Gap Inc. runs four brands (Old Navy, Gap, Banana Republic, and Athleta), and in the fiscal second quarter, exactly one of them was growing in any meaningful way. Total company net sales fell 2% year over year to $3.7 billion.
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The brand that was growing happens to share its name with the stock. Here’s a closer look at the quarter, brand by brand.
Image source: Getty Images.
Only one brand is really growing
The namesake Gap brand grew net sales 9% year over year to $844 million, with comparable sales up 10% — what CEO Richard Dickson called “another quarter of double-digit comparable sales.” That’s the second quarter in a row of double-digit comparable growth, and it’s momentum most mall retailers would love to have.
The rest of the portfolio went the other way. Old Navy’s net sales fell 4% to $2.1 billion, with comparable sales also down 4% — a reversal from growth a year ago, which management attributed partly to a weak women’s seasonal assortment and slowing traffic.
Banana Republic inched up 1% to $478 million, with comparable sales up 3%. And Athleta, the activewear chain, saw net sales sink 12% to $264 million. Its comparable sales fell just as much, on top of a 9% decline a year earlier.
Old Navy is more than half the company
Why does one brand’s stumble outweigh another’s surge? Scale. Old Navy’s $2.1 billion in quarterly net sales is about 57% of companywide net sales. The growing Gap brand, at $844 million, is well under half Old Navy’s size. Growth of 9% at the smaller brand cannot offset a 4% decline at the bigger one. In dollars, Old Navy’s slip erased roughly $85 million of quarterly sales while the Gap brand added about $70 million, which is how a company with a hot brand still shrank overall.
Management is acting on it. Gap Inc. named retail veteran Michael Francis as Old Navy’s next president and CEO, succeeding Haio Barbeito.
And the company’s updated outlook quietly acknowledges the problem. It now assumes Old Navy comparable sales of flat to down 1% for the year, cut from flat to up 1%, while its assumption for the Gap brand moved up to high-single-digit to low-double-digit comparable growth. The full-year plan got better, in other words, and the only brand assumption that moved up was the smaller one.
