Gap’s (GPS.N) new CEO is embarking on a closet cleanup. Shares in the U.S. apparel company leapt over 30% on Friday morning, a day after it unveiled third-quarter results. That reaction looks overdone, considering how overall net sales of $3.8 billion are still down 7% compared to last year, and earnings fell year-on-year. A little progress goes a long way when the bar is so low.
Same-store sales at sub-brand Old Navy for the quarter were up 1% year-on-year, the first quarterly increase in over two years. That’s promising for Richard Dickson, a former Mattel executive who helped reinvigorate brands like Barbie, and who took over as Gap chief in August. Yet performance has deteriorated elsewhere: Net sales at Banana Republic and Athleta were down 11% and 18% year-on-year, respectively, for instance, suggesting that a broader turnaround remains a long slog.
There were other bright spots. Gap managed to bring inventory levels in the quarter down 22% compared to last year, similar to Target (TGT.N) and Macy’s (M.N). With consumers’ excess savings dwindling and inflation slowing, retailers with low-cost appeal like Gap are finally occupying a sweet spot. The company might even use that tailwind to revive its scrapped plans to separate Old Navy into a stand-alone company.(By Sharon Lam)
Follow @Breakingviews on X
Capital Calls – More concise insights on global finance:
Walmart can overcome its dulling inflationary edge read more
HelloFresh becomes buyout amuse-bouche read more
Choppy luxury waters lift Burberry turnaround bar read more
China moves to clean up Huarong’s “bad bank” brand read more
Goodyear tune-up may go beyond rotating the tires read more
