Gap Reports Vastly Improved Q3 Sales And Earnings Results

The Gap’s new president, Richard Dickson, 52, has many challenges to overcome. His first meeting with analysts and investors after reporting 3rd quarter 2023 results shows that he has a clear understanding of the Gap’s problems and opportunities. In the three months that he has been on the job, he has closed many unprofitable Gap stores, invigorated Old Navy, and started to reposition Banana Republic and Athleta.

In the third quarter, his efforts have already made an impact on a few key metrics. The company improved both gross margin and operating margins and, most importantly, he is reviving the spirit of the associates and creating a culture of success.

Key Highlights

Net sales were $3.8 billion, a decrease of 7% from last year’s 3rd quarter. The company indicated that those sales results included about 2 percentage points of negative impact from the sale of Gap China.

Diving more deeply into this, comparable sales were down 2%. Store sales decreased 6% compared to last year. The company ended with 3,533 stores at the end of the quarter compared to last year’s third quarter of 3352 stores. The stores are in 40 countries; 2,598 of them (compared to 2,685 last year) are company operated.

Online sales decreased 8% compared to last year and represented 38% of total net sales.

A gross margin of 41.3% showed an increase of 390 basis points versus last year’s gross margin and increased 260 basis points versus last year’s adjusted gross margin. Last year’s adjusted gross margin excluded $53 million in impairment charges related to the decision to discontinue the Yeezy business.

1. The company ended the quarter with cash and cash equivalents of $1.4 billion, an increase of 99% from the prior year.

2. Year to date, net cash from operating activities was $832 million.

3. Ending inventory was $2.3 billion, down 22% compared to last year.

4. Year to date, capital expenditures were $288 million.

5. The Gap paid a third quarter dividend of $0.15 per share, totaling $55 million.

6. The effective tax rate was 15% and includes the benefit of foreign operations.

7. Reported net income was $218 million while reported diluted earnings per share were $0.58.

8. Adjusted net income was $221 million. Excluding restructuring costs, diluted earnings per share were $0.59.

9. The board of directors approved another $0.15 per share dividend for the fourth quarter of 2023.

Technical Analysist
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Investors have been pushing the share price higher, and the stock still appears to have upward momentum. This is a positive sign for the stock's future value.