Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Gap cut its annual sales out look after weaker than
Speaker 2: expected results at Old Navy, Banana Republic, and Athleta. The CEO,
Speaker 2: Richard Dixon, blamed merchandising missteps, especially dresses at Old Navy,
Speaker 2: while saying the company is still early in its turnaround.
Speaker 2: And fortunately, surveillance anchor Lisa Abramowitz has got Richard Dixon
Speaker 2: on the show for us. So Richard, Lisa take it
Speaker 2: away with Richard. Thank you so much.
Speaker 1: I really appreciate it. Matt. This is a real question,
Speaker 1: and I am so pleased to say that Richard Dixon,
Speaker 1: the CEO of the Gap company, is with us here today.
Speaker 1: And Richard, I want to just start with what went
Speaker 1: wrong with respect to the disappointing earnings and specifically how
Speaker 1: hard it is to get certain fashion calls right.
Speaker 3: Yeah, Lisa, it's a great question, but I want to
Speaker 3: zoom out. First of all, we actually delivered progress this quarter,
Speaker 3: and we delivered it against several key metris. Important to
Speaker 3: recognize this is our ninth consecutive quarter of positive comparable sales.
Speaker 3: Three out of our four brands are growing. Comps were
Speaker 3: up two percent and that's building on two percent comp
Speaker 3: growth from last year. We outperformed our gross margin outlook
Speaker 3: by thirty basis points. We won across all income cohorts
Speaker 3: gained share as our value proposition across the board continues
Speaker 3: to resonate, and we returned four hundred and fifty million
Speaker 3: dollars in cash to shareholders through dividends and share repurchases.
Speaker 3: As you call out, performance at the brand level was varied.
Speaker 3: First standout quarter at Gap brand up double digit ten
Speaker 3: percent on top of five percent last year. Old Navy
Speaker 3: delivered growth up one percent comp on top of last
Speaker 3: year's three percent growth. Now that also marks the brand's
Speaker 3: six consecutive quarter of positive comps. We've been pursuing categories
Speaker 3: like Denim, Active, Kids, and Baby all which posted growth
Speaker 3: versus last year, and they continue to build relevance with
Speaker 3: our customers. Seasonal categories have gotten off to a weaker start,
Speaker 3: in particular dresses, where we just did not have the
Speaker 3: right fashion and value equation. We actually overinvested some sales
Speaker 3: in inventory and didn't necessarily correctly anticipate what ended up
Speaker 3: to be a decline in the dress market. Where our
Speaker 3: dress assortment actually did resonate was in occasion dressing, which
Speaker 3: has more specific end use like weddings and easter. We've
Speaker 3: seen a change in customer acceptance of dresses during key
Speaker 3: peak moments, so summer stock up instead shifting more diversal
Speaker 3: categories and styles that can be worn. Let's call it
Speaker 3: year round.
Speaker 1: One thing that I've had as.
Speaker 3: We get as we get through the seasonal dynamic. We're
Speaker 3: looking forward obviously to the back half, and I'm very
Speaker 3: confident in our ability to drive improvement.
Speaker 1: You know, it is really notable, Richard, that both you
Speaker 1: and American Eagle came out reported certain pockets of disappointment
Speaker 1: amid otherwise robust performance and talked about how it wasn't
Speaker 1: because the consumer demand wasn't there, it was because of
Speaker 1: specific missteps. Is there something about the environment right now
Speaker 1: that makes it harder to get these things right? Because
Speaker 1: two different companies called out something similar in terms of
Speaker 1: style issues fashion issues? Is it a moment or is
Speaker 1: it just the fashion industry?
Speaker 3: Look, I probably think it's both, but both. I mean,
Speaker 3: the fashion industry is a dynamic industry. To your point,
Speaker 3: we are seeing consistency and strength and consumer behavior. But ultimately,
Speaker 3: you know, this is a dialogue with consumers that you
Speaker 3: have to follow and ultimately drive. And in this particular case,
Speaker 3: again when you back up and you look at our
Speaker 3: whole portfolio, gain share consistency in growth nine consecutive quarters,
Speaker 3: three out of four brands, growing growth across all income cohorts,
Speaker 3: very specific call out on a category that, by the way,
Speaker 3: as we enter the second half, is very small. And
Speaker 3: so again you know this was to some extent, you know,
Speaker 3: dynamic the business that we're in, softness in the women's
Speaker 3: dress business. But ultimately we believe as a portfolio we've
Speaker 3: got great room and a great back half ahead of us.
Speaker 1: Why do you think then that investors don't seem to
Speaker 1: be feeling that. This morning, you see shares lower by
Speaker 1: more than sixteen percent. Year to date, shares are also
Speaker 1: lower by a similar amount. Why aren't they reflecting the
Speaker 1: strength that you're talking about.
Speaker 3: Look, we feel very confident in where we're at and
Speaker 3: where we're going. We see great strength at the Gap brand,
Speaker 3: which again is is incredible double digit growth. We've got
Speaker 3: now continued growth of Bin out of Republic. We just
Speaker 3: reported our fourth consecutive quarter Old Navy did deliver one
Speaker 3: percent comp and well, we expect sales to deliver flat
Speaker 3: to one percent now low single digits in the Q
Speaker 3: two and then moderated growth in the second half with
Speaker 3: the seasonal categories off to a weaker start in particular Dress,
Speaker 3: we are obviously on balance taking a more moderated view
Speaker 3: of the total year. We are also holding our operating
Speaker 3: margin outlook. Our gross margin outlook is unchanged at flat
Speaker 3: to up slightly. We're continuing to maintain cost disciplines with
Speaker 3: SGNA as a rate to sales that's flat, and despite
Speaker 3: the lower sales outlook, which by the way, still represents growth,
Speaker 3: we're raising our earnings outlook from two dollars and thirty
Speaker 3: cents to two dollars and forty cents, which reflects eleven
Speaker 3: percent growth year over year at the midpoint. And while
Speaker 3: this is our outlook currently on the top line, we
Speaker 3: aspired to outperform it as the brand strive for continuous improvement.
Speaker 3: That's why we're a long game. The companies in a
Speaker 3: healthy space and we're excited about what we have ahead.
Speaker 1: Richard, I am curious how much upside there is potentially
Speaker 1: if you do get some of those those terra freebates
Speaker 1: that a lot of people were talking about, are you
Speaker 1: expecting that to potentially lead to an upside surprise?
Speaker 3: You know, we we are. You know, we're an importer
Speaker 3: of record, so we qualify for a refund. That said,
Speaker 3: we use the reconciliation method, which has currently been excluded
Speaker 3: from Phase one. We've been encouraged by the progress that
Speaker 3: has been made for Phase one applicants in our industry. However,
Speaker 3: without being included in Phase one, the situation does remain
Speaker 3: fluid as to when and what amount of refund will
Speaker 3: ultimately be realized. Therefore, we're not providing a quantification at
Speaker 3: this point. We haven't assumed any benefit in our outlook.
Speaker 3: But of course, you know, we anticipate that we'll share
Speaker 3: more as things become more tangible.
Speaker 1: So Richard, just before I let you go, the takeaway
Speaker 1: here is casual dresses for the summer not really in anymore?
Speaker 1: Is that sort of not what's going on? That and said,
Speaker 1: we're going to be in Jans.
Speaker 3: I think we overweighted our expectation of the dress category.
Speaker 3: Dresses are still an important category. People are still wearing dresses.
Speaker 3: What we do see is it's just more a Hasian
Speaker 3: based Whereas we drove more of that everyday dressing in mind,
Speaker 3: and we did see a shift and so dresses are
Speaker 3: still important. We've got this. We're doing our best to
Speaker 3: move through the seasonal product and again as we move
Speaker 3: into the back half and the seasonal seasonal products are
Speaker 3: behind us, we think we've got great programs in place
Speaker 3: to drive growth.
Speaker 1: Richard Dixon, always wonderful to speak with you. Thank you
Speaker 1: so much for being with us. That is the gap
Speaker 1: inc CEO and Matt. Evidently my casual dresses this summer.
Speaker 3: Maybe I'm still a fan.
Speaker 2: I'm still a fan.
Speaker 1: Yes,