Gap stock edged up in after-hours trading Thursday, after the company reported a slight increase in earnings for its fourth quarter, powered primarily by its subsidiary spinoff Old Navy.
But the clothing and accessories retailer issued a “balanced view” on its 2024 financial outlook, citing “an uncertain consumer and macro environment.”
Despite that cautionary outlook, Gap said the increase in its gross margin, which reached 39.9% during the fourth quarter, was driven in part by reduced costs, fewer item markdowns, and a reduced inventory, which the company said it reduced by 16%.
But Old Navy’s sales showed that consumers may still be reaching for more affordable options when it comes to clothing and accessories, even with inflation cooling. Sales at Old Navy were up 6% during the fourth quarter, to $2.29 billion.
The San Francisco-based Gap exceeded Wall Street’s earnings expectations. The 54-year-old retailer generated $4.3 billion in revenue, about 49 cents per share. Analysts projected Gap would generate $4.22 billion in revenue, or 23 cents per share.
Gap CEO Richard Dickson told investors during the company’s earnings call that it is still in the midst of an “assessment phase,” and is aiming to be a “digital-first organization” that leverages technology to enhance the customer experience.
“Our brands need to show up for consumers where they are,” Dickson said during Gap’s earnings call.“There is an art and science in creating demand, and Gap has been behind.”
Dickson took helm of the company last August after a stint as chief operating officer at the toy company Mattel.
He said he expects overall sales in 2024 to be flat, and pointed to Old Navy and The Gap brands as profit drivers. He said Gap’s other two subsidiaries — Banana Republic and Athleta — would lag, partly due to higher holiday discounts and lack of brand recognition among consumers.
“The playbook is in action,” Dickson said in reference to Gap’s “Linen Moves” campaign with Grammy award-winning singer Tyla, featuring music by Jungle. The ad campaign has showed early signs of progress, he said, and is the highest performing video ever on Gap’s social media accounts.
Gap’s revamp efforts have long been in motion. Earlier this year, the company announced a slew of C-suite changes. In February, Gap said it would be appointing American fashion designer Zac Posen as creative director of Gap and as chief creative officer of Old Navy. In January, Gap named Eric Chan as its chief business and strategy officer, and Amy Thompson as its chief people officer.