Gap Inc. said its sales came in stronger than expected, bucking the trend across the majority of retail and restaurant chains that have been warning of consumers’ deepening caution in recent weeks.
The San Francisco-based chain follows sales beats by Walmart Inc., Ross Stores Inc., and TJX Cos., the discounter that owns TJ Maxx and Marshalls, showing that chains can still win over consumers despite their deepening caution — as long as they nail execution.
Many of them cited success appealing to higher-income consumers coming for good deals. For TJ Maxx and Ross, the treasure hunt experience has been particularly resonant at a time when discounts have dropped across the industry. Likewise, Walmart’s been able to appeal to more affluent shoppers with online services, fast deliveries and expansive digital offerings that now include luxury items like pre-owned Chanel bags and other accessories.
In Gap’s case, celebrity-fueled marketing, flashy collaborations and revamped inventory are bringing more consumers in the door and helped push comparable sales 5% higher in the third quarter. The shares rose as much as 7.5% in premarket trading on Friday.
Careful spending
Elsewhere in consumer retail and restaurants, the results haven’t been as encouraging. Home Depot Inc.’s figures earlier this week showed that shoppers are pausing remodeling projects and big-ticket home purchases. Target Corp., which has been trying to recapture its fun factor, trimmed its profit outlook amid disappointing sales. Chipotle Mexican Grill Inc. and Sweetgreen Inc. have been struggling.
A number of companies have warned in recent weeks that consumers are spending carefully and focusing more on essential items as sentiment deteriorates and years of rising prices eat into purchasing power.
Gap Chief Executive Richard Dickson said the company’s variety of brands and price points are helping to insulate its performance, while new initiatives are reigniting excitement. Gap has launched collaborations, including with luggage brand Béis, and the GapStudio line that’s being promoted by Gwyneth Paltrow and her daughter. At Old Navy, which generated nearly 60% of total revenue in the quarter, the company said its denim, activewear, kids and baby categories resonated with shoppers.
Gap now sees net sales growing 1.7% to 2% this year, raising the bottom end of the projected range from 1%. Operating margin, a gauge of profitability that includes the impact of tariffs, is expected to be 7.2% — up from the previous range that had topped out at 7%.
‘Final stages’
“We are entering the final stages of fixing the fundamentals,” Chief Financial Officer Katrina O’Connell said during the company’s conference call. Dickson has sought to overhaul operations since arriving in 2023, when Gap’s performance was marred by messy stores and missteps on merchandise and inventory.
While some consumers are spending cautiously and looking for discounts, Gap has managed to sell more products at full price, helping to offset the impact of tariffs. It raised prices of denim, but that didn’t deter shoppers, according to the company.
The results offer further proof that Gap’s “brand reinvigoration initiatives are proving successful, with performance becoming increasingly more consistent,” Morgan Stanley analyst Alex Straton said in a note.
While momentum accelerated at Gap’s main brands, Athleta continued to struggle. Comparable sales slumped 11% at the sportswear chain, worse than expected. The company said it’s “beginning with a focus on the fundamentals” at Athleta, efforts that “will take time.”
“There is a lot of work to do at Athleta,” Dickson said. The newly appointed CEO of the brand, Maggie Gauger, will help to reset it, he added.
Gap has freshened up its assortment by adding the higher-end GapStudio line. It’s also offering non-apparel categories, with hair and body mists and lotions available at Old Navy.
Meier writes for Bloomberg.
