Gap Inc. CEO Richard Dickson hosted his first company earnings call professing full faith in the iconic past of the company’s brands, saying that he chose his first day deliberately.
“Just as August 22, 1969, was the milestone that created this remarkable company, I want August 22, 2023, to mark the start of an exciting new chapter for Gap Inc.,” he said.
Dickson also said that, while he sees signs of life in the company’s brands, it will take work to return them to their previous strength.
“Brands that matter can be monetized,” he said. “We need to make these brands matter more, and ultimately that is going to be the pursuit."
He ticked off other existing strengths including its the company’s talent, hundreds of millions of visits to stores, appeal to a range of demographics and $1.4 billion cash on hand. Dickson, who arrives fresh off Barbie’s startling comeback while he was operations chief at Mattel, acknowledged that the company’s financial strength stems in large part to painful cuts under interim CEO Bob Martin, including eliminating 1,800 jobs in April on top of 500 layoffs last September.
Sales across all the company’s brands continued to fall in the second quarter, though gross margin expanded by 310 basis points to 37.6% thanks to lower promotional levels, Chief Financial Officer Katrina O’Connell told analysts. Thanks to tighter inventory control and lower freight costs, the retailer also reached $117 million in net income, up from last year’s $49 million loss, and inventory was down 29% from a year ago, according to a company press release Thursday.
Overall, Q2 net sales fell 8% year over year to $3.5 billion. At Old Navy, net sales fell 6% to $1.96 billion, with comps down 6%. At Banana Republic net sales fell 11% to $480 million, with comps down 8%. At Athleta, net sales fell just 1% to $341 million, with comps down 7%. Gap net sales fell 14% to $755 million, with comps down 1%, in part due to the shutdown of Yeezy Gap and the sale of Gap China.
The company is facing consumers hesitant to spend on apparel, with Old Navy especially challenged because many of its customers have tighter budgets, executives said. Despite the declines, however, all brands also took market share in the period, O’Connell said.
There is enormous pressure on Dickson to deliver a comeback that has eluded Gap Inc. for years, especially at its namesake brand. Bank of America analysts Lorraine Hutchinson and Alice Xiao said in a research note that the company’s “prudent inventory management” was encouraging but that they expect sales declines to continue.
Wells Fargo analysts Ike Boruchow and Will Gaertner said any turnaround depends on “solid execution on driving demand and improving efficiency.”
“Sales have stumbled post-pandemic, but a better inventory setup and mgmt push to optimize merch selection provides an oppty to improve as their new CEO begins his tenure.” they said in a client note.
So early in the job at a company that has tried and failed to turn itself around, Dickson’s prospects remain murky. GlobalData Managing Director Neil Saunders cautioned that the company itself must not stand in his way.
“His initial sentiments, stressing the need to do things differently and to redefine the brands so that they have meaning to consumers, are very sensible,” he said in emailed comments. “We only hope that the usual inertia of Gap doesn't grow like weeds over his ambitions.”