After two decades of failed comeback attempts, there is a growing consensus on Wall Street that Gap’s latest turnaround might just be the one that sticks.
On Tuesday, investment bank TD Cowen upgraded Gap Inc.’s stock from hold to buy, the fourth such ratings change by a retail analyst this year. Cowen’s Jonna Kim praised the company for “encouraging signs of brand transformation at Gap, more sustained growth at Old Navy and the prospect of Athleta returning to growth in [the second half of 2024] driven by the new management team.”
Under CEO Richard Dickson, the former Mattel executive who was appointed to the top role almost one year ago, the Gap brand’s entire visual identity has seen a gradual overhaul. Its assortment was scaled back to emphasise core styles. A website redesign has made the e-commerce experience less cluttered. And most importantly, products are being presented to shoppers — both online and in store — with an appealing mix of trendiness and accessibility. Dickson has credited Zac Posen, who joined Gap Inc. as creative director in February, for that last bit.
Customers are starting to notice. In the quarter ending May 4, all four of the company’s brands, which also includes Banana Republic, posted sales increases for the first time in years. The company’s stock has more than doubled since Dickson’s appointment in July 2023.
“With both Gap and Old Navy, you can tell the styling is so much better,” said Jessica Ramirez. “They’re showing how everyday people actually dress.”
Ramirez points to a product page for a pair of pleated shorts, in which the item is styled with a hoodie, a bucket hat and Adidas Sambas sneakers — Gen-Z’s current shoe of choice. “This really shows how an item can be worn, especially if I already have a hoodie and sneakers at home.”
A slew of buzzy collaborations and fashion-forward capsules have also helped propel the Gap brand into the cultural limelight in recent months, including a tie-up with the California brand Dôen in May. A spring linens collection promoted via a campaign with the musician Tyla was instrumental in driving sales growth this spring, according to Dickson in Gap’s latest earnings call. Last month, Gap Inc. signed on Omnicom Group as its media and marketing agency of record, which will play a major role in the company’s reinvigoration strategy, according to Dickson.
At Old Navy, a trendier assortment is getting traction on TikTok, where users have noted its spring summer line, which includes gingham dresses and linen matching sets, look a lot like Reformation — but at a fraction of the price.
Being on trend is about more than chasing clout. It also gives Gap and Old Navy the ability to rein in promotions, which have been a near constant at both brands for many years. The company has reported higher margins in recent quarters.
Even so, it’s too soon to call the turnaround a success. After so many years in the fashion wilderness, the bar is very low. While all four brands saw a sales lift last quarter, the growth was moderate: 3 percent at both Gap and Old Navy. Competition, whether from fast fashion or fellow mall retailers like the red hot Abercrombie & Fitch, is still fierce.
“Their growth doesn’t look amazing relative to some of their peers,” said Simeon Siegel, analyst at BMO Capital Markets.
Gap Inc. also has a history of short-lived breakthroughs. Banana Republic, for instance, saw a sudden spurt of sales growth after a major brand reinvention campaign, but could not sustain that momentum beyond three quarters.
“They’ll have one great capsule out of nowhere but it’s inconsistent,” Ramirez said.
But Dickson’s turnaround is already outperforming the last effort to resuscitate the Gap brand, the Yeezy collaboration in 2022 that baffled shoppers with massive heaps of black T-shirts and hoodies piled at the front of stores.
Unlike that last attempt, today’s streamlined assortment and confident marketing create a sense that Gap knows what it stands for again.
“You can tell they’re not trying to appeal to everyone anymore,” said retail consultant Gabriella Santaniello. “They’re comfortable.”
THE NEWS IN BRIEF
FASHION, BUSINESS AND THE ECONOMY
Bernard Arnault said to have bought stake in Richemont. The stake was described by a source as “small” and part of a broader Arnault family-owned portfolio of investments in publicly listed companies, Bloomberg reported. Arnault currently intends to hold the stock only as an investment, said the person.
Shein files for London IPO, Reuters reports. The China-founded company, which was valued at $66 billion in a fundraising round last year, started engaging with its financial and legal advisors earlier to explore a LSE listing this year. It is not immediately clear when Shein plans to launch the initial public offering.
Levi Strauss posts quarterly revenue miss but maintains annual forecasts. The company reported second-quarter net revenue of $1.44 billion, compared with estimates of $1.45 billion. The company continues to expect fiscal 2024 revenue growth of 1 percent to 3 percent, while analysts on average expected growth of 2.79 percent, as per LSEG data.
Nike posts surprise quarterly revenue drop on choppy demand. The company’s efforts to drive more sales through its direct-to-consumer channel have also taken a hit as customers turn more picky about their non-essential spending. Nike’s net revenue fell 1.71 percent to $12.61 billion.
H&M sinks on doubts about margin target and June sale drop. Sales this month are likely to fall 6 percent in local currencies versus a year earlier, partly due to poor weather in many markets, the Swedish company said. In the second half of the year, H&M plans to boost sales by offering slightly higher discounts, said CEO Daniel Erver.
Amazon plans discount web store in effort to counter Temu and Shein. The company’s plans show Amazon shipping goods directly to customers from China. Amazon, which has sought to hold its ground with promises of speedy shipping, previously encouraged Chinese merchants to use logistics services that concentrate merchandise at US-based warehouses.
LVMH buys high-end Swiss clock manufacture L’Epée 1839. The acquisition adds a small but prestigious brand to LVMH’s watchmaking division, which is headed by Frédéric Arnault. L’Epée has gained attention in recent years by teaming with well-known watchmakers for collaborations including Maximilian Büsser.
L Catterton Group raises $756 million in Birkenstock share sale. The holders sold 14 million shares for $54 each, according to a statement, representing a 9.7 percent discount to the closing price of $59.78 each on Monday. The LVMH-backed private equity firm will have about a 73 percent stake in Birkenstock after the sale.
Top Rolex seller sees signs of stability in UK watch market. Watches of Switzerland said sales of used watches doubled in its fourth quarter from the prior year and are now its second-biggest source of revenue. Shares of the top seller of Rolex watches in Britain rose as much as 9.7 percent.
Lululemon-backed recycler Samsara Eco raises $65 million. The company will use the funds to help build facilities that can recycle materials like polyester and nylon at commercial scale. It’s planning to build the capacity to recycle millions of tonnes of plastic waste in South East Asia by late 2026.
Frasers buy THG’s Coggles website as they unveil partnership deal. For THG, the deal will give it access to a customer for its retail website technology, as well as providing an outlet for its products, including its Myprotein brand, in Sports Direct stores. Frasers will use THG for management of couriers and running its Australian delivery operations.
THE BUSINESS OF BEAUTY
Novo Nordisk’s Wegovy approved in China for weight loss. Novo shares rose as much as 2.2 percent in Copenhagen. The drugmaker has climbed more than 40 percent this year on optimism over its obesity portfolio.
L’Oréal CEO sees slower beauty market growth as China struggles. Nicolas Hieronimus told investors that he now sees the global beauty market growing between 4.5 percent and 5 percent this year from a previous forecast of 5 percent earlier this year. Shares of L’Oréal fell as much as 5.1 percent in Paris and closed 3.4 percent lower. They’ve lost 6.2 percent so far this year.
Innovent’s obesity drug shows similar weight loss as Eli Lilly’s Zepbound. Innovent is seeking approval for mazdutide as a weight loss treatment in China. The drug’s sales in the country may reach $1.3 billion by 2030, according to Bloomberg Intelligence.
Revolution Beauty expects to return to growth by year-end. The affordable cosmetics line improved profitability, but expects revenues to slump in the first half of 2025 before returning to growth. The company’s share price rose 6 percent following the results, though it has fallen some 30 percent in the last six months.
Tracy Anderson launches fragrance. The fitness mogul’s first products, a candle and an eau de parfum, will be available for pre-sale shopping from a dedicated e-commerce site. Rollout into retail will likely follow.
PEOPLE
Lanvin names Peter Copping its new artistic director. Copping, who most recently worked behind the scenes at Balenciaga, will join France’s oldest couture house from September. The designer previously served as creative director of Oscar de la Renta and Nina Ricci.
Ren Clean skincare CEO to step down. Michelle Brett, will be stepping down from her post on July 1. Under Brett’s leadership, the brand has refined its marketing and product assortment to focus more heavily on sensitive skin. A successor has yet to be named.
Australia’s Christopher Esber wins Andam Grand Prize 2024. Esber, who is known for his sleek, summery eveningwear, will receive a grant of €300,000 to develop his brand as well as a year of mentoring from Saint Laurent creative director Anthony Vaccarello.
MEDIA AND TECHNOLOGY
Vogue World takes on Paris and sports. A month out from Paris’ first Olympic games since 1924, the magazine shut down the iconic Place Vendôme for the show. This year’s Paris event was the third edition following events in New York and London.
Compiled by Yola Mzizi.
