Gap Stock Slides as Athleta Woes Overshadow Earnings Beat
Retailer misses Q2 revenue targets despite strong Banana Republic sales, as the activewear brand struggles to find its footing.
Shares in Gap Inc. fell in after-hours trading after the apparel retailer reported mixed results for the second quarter, with a significant sales decline at its Athleta brand overshadowing an earnings beat and strong performance at Banana Republic.
The company posted earnings of $0.57 per share, surpassing analyst estimates of $0.41. However, revenue remained flat at $3.7 billion, narrowly missing expectations. The miss was primarily driven by an 11% sales decline at Athleta, its activewear line, which has struggled to retain its core customers.
CEO Richard Dickson described the period as a "year of reset" for Athleta, acknowledging that the brand had moved away from its "distinctive performance roots" in an attempt to court new customers. "We’re disappointed in the quarter," Dickson told CNBC, noting the company hadn't provided enough offerings for its core base. The brand recently appointed former Nike executive Maggie Gauger as its new CEO to steer a turnaround.
In stark contrast, Banana Republic delivered a notable 4% increase in comparable sales, far exceeding analyst expectations and signaling that its own brand revival is gaining traction. The company's namesake Gap brand also continued its positive trajectory, marking its seventh consecutive quarter of comparable sales growth, fueled by successful marketing campaigns like "Better in Denim."
Overall, Gap Inc. saw comparable sales rise 1%, marking the sixth straight quarter of positive growth for the company as a whole. The retailer ended the quarter with a strong cash position of $2.4 billion.
Despite the challenges at Athleta, management reaffirmed its full-year sales growth forecast of 1% to 2%. However, it also increased its projected costs related to tariffs for the year to a range of $150 million to $175 million. The mixed results highlight the ongoing challenge for Gap as it works to reinvigorate its portfolio of iconic American brands in a competitive retail landscape.