After a long trip out in the earnings wilderness — and an increasing conviction from market watchers that Gap Inc. might simply be the latest mall brand caught in the retail whirlpool — things are beginning to turn around.
With, of course, a few qualifications.
During its earnings report last Thursday (March 1), Gap Inc. reported 5 percent same-store sales growth — the majority of which was driven by Old Navy, which logged 9 percent comparable sales growth. Banana Republic, by comparison, was up 1 percent year over year, while growth at its namesake Gap brand remained flat.
Athleta, Gap’s athleisure brand, logged sales that CEO Arthur Peck called “extraordinary” but didn’t break down those earnings separately. Gap Inc. also reported $71 million in a goodwill impairment charge related to Intermix, a multi-brand specialty retailer of luxury and contemporary women’s apparel and accessories it bought for $130 million in 2012 — which means Gap officially confirms Intermix is worth less than what it paid for it.
Gap didn’t have much to say about Intermix, but it want to talk about its Q4 earnings performance.
“Nearly all categories comped positively this last year, and, importantly, both stores and online saw strong top-line and bottom-line growth. We also accelerated Old Navy store openings, as we had indicated in our strategy presentation back in September, with … over 30 new stores in 2017,” CEO Arthur Peck noted at the outset of his comments to investors.
Peck said Old Navy remains at the center of its expansion plans for 2018, with plans to double store openings in 2018. Athleta, with its “mid-teens” growth, hopes to expand into a “girls business.”
Gap and Banana Republic, on the other hand, will likely continue to see contractions, with the exception of their associated outlet lines.
Beyond store openings and closures, Gap Inc. is building out its digital capacity, with an eye toward supporting (and enhancing) its stores.
The Digital Pillar
Gap reported big digital growth in Q4 — with a 30 percent uptick.
“We set a goal publicly for this business [digitally] to reach $3 billion in 2017, and I’m pleased to report that we exceeded that goal by over $100 million,” Peck said.
The CEO credited that success to technical improvements — like investing in better site speed, particularly on mobile, where page load times have been sped up to three seconds.
How big a difference can three seconds make?
“[We] estimate this has delivered approximately $300 million [in] sales growth,” he told investors — noting this is only the beginning.
“We have a history of being a digital innovator, and we will continue to invest in this area given the outsized returns. This year, we delivered capabilities that continue to more effectively monetize visits … such … as: first of all, driving traffic; secondly, [improving] conversion across a number of different facets of technical capabilities that we have; and the third is [encouraging] bigger baskets … This is part of creating a unique and differentiated customer experience to grow our loyal customer base and encourage cross-channel and cross-brand shopping.”
“Stores Matter”
Gap Inc.’s digital channels are expanding and gaining momentum, Peck noted, but “stores matter” insofar as they represent some 80 percent of the brand’s sales.
“Stores matter” with some caveats, of course: They have to be the right stores, which, at this phase of the Gap’s evolution, means Athleta and Old Navy, while Gap and Banana Republic will continue to diminish in scope. Gap Inc. announced 200 stores closures as 2017 was winding down, and that plan remains unchanged.
Going forward, Peck told investors, a meaningful portion of the brand’s investment will focus on customer service and digital innovations, because that is where the opportunity for building out the brand lies.
“Customers who shop across channels in a single brand are worth eight times more than the customer who only visits us in a brand, and that multiplies to 10 times more when they shop across channels and multiple brands. We are very focused on migrating our customers from single brand connections to multi-brand, multi-channel connections. These intentional investments are already delivering a great return,” Peck explained.
Pursing that strategy, the CEO noted, will take aggression and discipline, as the company is increasingly clearing the “low-hanging fruit” and moving up the food chain to the changes that require a “more fundamental reengineering of our work.”
What will that look like?
So far, it seems Gap Inc. will be focusing on developing its fast fashion and athleisure lines, improving its digital platforms and driving customer loyalty online and offline.
But, as always, stay tuned.
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