Gap Exceeds Q4 Expectations, 3% Sales Rise Despite Decline

Gap reported higher-than-expected results for its fiscal fourth quarter and full-year 2024, reflecting continued momentum under the current CEO. The company’s net sales for the fourth quarter declined by 3% year-over-year to US$4.15 billion, impacted by calendar shifts and the absence of an extra selling week. However, comparable sales increased by 3%, surpassing expectations of a 1% rise.

The company reported net income of US$206 million, or US$0.54 per share, exceeding analyst estimates of US$0.37 per share. Operating income reached US$259 million, with an operating margin of 6.2%. Gross margin remained stable at 38.9%, with merchandise margins improving slightly by 20 basis points.

Gap’s largest brand, Old Navy, posted net sales of US$2.2 billion, a 3% decline year-over-year, though comparable sales increased by 3%. The namesake Gap brand saw net sales decrease 3% to US$980 million, but comparable sales surged 7%, reflecting successful brand revitalization efforts. Banana Republic recorded a 4% sales decline to US$545 million, despite a 4% increase in comparable sales. Athleta’s net sales dropped 5% to US$396 million, with comparable sales falling 2%.

For the full fiscal year, Gap’s net sales reached US$15.1 billion, reflecting a 1% increase, or 2% when adjusted for calendar shifts. E-commerce sales grew by 4%, comprising 38% of total revenue. Comparable sales rose 3% for the year.

The company achieved a net income of US$844 million, translating to diluted earnings per share of US$2.20. Operating income stood at US$1.1 billion, with an operating margin of 7.4%. Gross margin improved by 250 basis points to 41.3%, the highest in over 20 years, driven by lower commodity costs and improved operational efficiency.

“Our strategy is gaining traction, and we have now delivered positive comparable sales for four consecutive quarters while expanding gross margin and operating margin,” said Richard Dickson, CEO, Gap. “We are seeing the impact of our operational execution and brand reinvigoration.”

Gap expects net sales growth of 1% to 2% for fiscal 2025, aligning with analyst projections of 1.7%. The company anticipates first-quarter sales to be flat to slightly up, compared to Wall Street’s expectation of a 1.5% increase.

Under Dickson’s leadership, Gap has worked to strengthen its brand positioning, particularly for its namesake label. “Gap is back in the cultural conversation,” Dickson said, noting that marketing initiatives and celebrity endorsements have helped reignite the brand's momentum.

Old Navy continued to show resilience, especially in denim and activewear, while Banana Republic saw growth in men’s apparel despite lacking a permanent CEO. Athleta remains a challenge, with Dickson acknowledging the need for product adjustments to better engage core consumers.

Regarding potential trade policy shifts, Dickson stated that less than 10% of Gap’s products originate from China, and the company is working with suppliers to mitigate any potential cost increases. “Our goal is to minimize the impact to the consumer while maintaining the structural economics of our business,” he said.