Gap CEO Remains Bullish Despite Lowering Sales Outlook

Ajouté : 2026-05-31

[00:00:00]I want to just start with what went wrong with respect to the disappointing earnings, and specifically how hard it is to get certain fashion calls, right?

[00:00:09]Yeah, it's a it's a great question, but I want to zoom out.

[00:00:11]First of all, we actually delivered progress, uh, this quarter.

[00:00:15]And we delivered it against several key metrics important to recognize.

[00:00:19]This is our ninth consecutive quarter of positive comparable sales.

[00:00:23]Three out of our four brands are growing.

[00:00:26]Comps were up 2%. And that's building on 2% comp growth from last year. We outperformed our gross margin outlook by 30 basis points. We won across all income cohorts.

[00:00:37]Gain share as our value proposition across the board continues to resonate.

[00:00:42]And we returned $450 million in cash to shareholders through dividends and share repurchases. As you call out, performance at the brand level was varied. First standout quarter at GAAP ran up double digit 10% on top of 5%. Last year.

[00:01:01]Old Navy delivered growth up 1% comp on top of last year's 3% growth.

[00:01:08]Now, that also marks the brand's sixth consecutive quarter of positive comps.

[00:01:13]We've been pursuing categories like denim, Active Kids and Baby all, which posted growth versus last year, and they continue to build relevance with our customers. Seasonal categories have gotten off to a weaker start. In particular, dresses where we just did not have the right fashion and value equation.

[00:01:32]We actually over invested some sales in inventory and didn't necessarily correctly anticipate what ended up to be a decline in the dress market.

[00:01:41]Where our dress assortment actually did resonate was an occasion dressing, which has more specific and use like weddings and Easter.

[00:01:50]We've seen a change in customer acceptance of dresses during key peak moments, so summer stock up instead, shifting more to virtual categories and styles that can be worn. Let's call it year round.

[00:02:02]One thing that I find as we get, as we get through the seasonal dynamic, we're looking forward, obviously to the back half.

[00:02:08]And I'm very confident in our ability to drive improvement.

[00:02:11]You know, it's really notable that both you and American Eagle came out, reported certain pockets of disappointment amid otherwise robust performance, and talked about how it wasn't because the consumer demand wasn't there, it was because of specific missteps.

[00:02:25]Is there something about the environment right now that makes it harder to get these things right? Because two different companies called out something similar in terms of style issues, fashion issues, is it a moment or is it just the fashion industry? Look, I probably think it's both, but both I mean, the fashion industry is a dynamic industry.

[00:02:43]Uh, to your point, we are seeing consistency and strength in consumer behavior. But ultimately, you know, this is a dialogue with consumers that you have to follow and ultimately drive.

[00:02:54]And in this particular case, again, when you back up and you look at our whole portfolio gain share, consistency in growth, nine consecutive quarters, three out of four brands growing growth across all income cohorts.

[00:03:06]Very specific call out on a category that, by the way as we enter the second half is very small. And so again, you know, this was to some extent, you know, the dynamic, the business that we're in.

[00:03:20]Softness in the women's dress business. But ultimately we believe as a portfolio, uh, we've got, you know, great room and a great back half ahead of us. Why do you think, then, that investors don't seem to be feeling that this morning?

[00:03:33]You see shares lower by more than 16% year to date.

[00:03:37]Shares are also lower by a similar amount.

[00:03:40]Why aren't they reflecting the strength that you're talking about?

[00:03:44]Look, we feel very confident in where we're at and where we're going.

[00:03:47]We see great strength at the gap brand, which again, is it is incredible double digit growth. We've got now continued growth of Banana Republic. We just reported our fourth consecutive quarter. Old Navy did in silver 1% comp.

[00:04:02]Uh and well we expect sales to deliver flat to 1% now low single digits uh, in the Q2 and then moderated growth in the second half, uh, with the seasonal categories off to a weaker start in particular dresses.

[00:04:18]Um, we are obviously on balance taking a more moderated view of the total year.

[00:04:24]We are also holding our operating margin outlook.

[00:04:27]Our gross margin outlook is unchanged at flat two, up slightly.

[00:04:31]We're continuing to maintain cost disciplines with China as a rate to sales. That's flat.

[00:04:37]And despite the lower sales outlook, which by the way, still represents growth, we're raising our earnings outlook from $2.30 to 2040 cents, which reflects 11% growth year over year at the midpoint.

[00:04:51]Yeah. And while this is our outlook currently on the top line, we aspire to outperform it as the brand strive for continuous improvement. That's why we're in the long game.

[00:04:59]The company's in a healthy space and we're excited about what we have ahead.

[00:05:03]Richard, I am curious how much upside there is potentially, if you do get some of those those tariff rebates that a lot of people are talking about.

[00:05:10]Are you expecting that to potentially lead to an upside surprise.

[00:05:16]You know, we are you know we're an importer of record.

[00:05:20]So we qualify for a refund. That said, we use the reconciliation method, which is currently been excluded from phase one.

[00:05:28]We've been encouraged by the progress that has been made for phase one applicants in our industry. However, without being included in phase one, the situation does remain fluid as to when and what amount of refund will ultimately be realized. Therefore, we're not providing a quantification at this point. We haven't assumed any benefit in our outlook. But of course, you know, we anticipate that we'll share more as things become more tangible.

[00:05:55]So, Richard, just before I let you go, the takeaway here is that casual dress is for the summer. Not really in anymore.

[00:06:02]Is that sort of not what's going on? That said, we're going to be in jeans.

[00:06:07]I think we over weighted our expectation of the dress category.

[00:06:10]Dresses are still an important category. Uh, people are still wearing dresses.

[00:06:15]What we do see is it's just more occasion based.

[00:06:18]Whereas we drove more of that everyday dressing in mind.

[00:06:22]And we did see a shift. Uh, and so dresses are still important.

[00:06:26]We've got this, uh, we're doing our best to move through the seasonal product.

[00:06:30]And again, as we move into the back half and the seasonal, seasonal products are behind us, we think we've got great programs in place to drive growth.