GAP INC Q1 FY2025 earnings call

Richard Dickson noted the first quarter was strong with positive comp sales for the fifth consecutive quarter, expanded gross and operating margins, and gained market share for the ninth consecutive quarter. Old Navy had a 3% comp and ninth consecutive quarter of market share gains, with growth in active and denim categories. Gap had a 5% comp and sixth consecutive quarter of positive comps, with momentum in women's, denim, and collaborations. Banana Republic had flat comps with improving fundamentals, and Athleta was in the process of resetting the brand. The company has been diversifying sourcing, with China's sourcing expected to be less than 3% by the end of 2025. They are also investing in US vendor sourcing of cotton and technology to enhance customer experience.

In the first quarter, net sales of $3.5 billion increased 2% year over year. Comparable sales also rose 2%. By brand: Old Navy had net sales of $2 billion, up 3% with comparable sales up 3%, accounting for approximately 57.1% of total net sales. Gap brand's net sales were $724 million, up 5% with comparable sales up 5%, representing about 20.7% of total net sales. Banana Republic's net sales were $428 million, down 3% year over year. Athleta's net sales were $308 million, down 6% versus last year with comparable sales down 8%.

The company reiterates fiscal 2025 net sales up 1% to 2% and operating income growth in the 8% to 10% range excluding tariff impact. Based on current tariff policy, they estimate a net impact of $100 million to $150 million to fiscal 2025 operating margin. Second-quarter net sales are expected to be roughly flat, with gross margin similar to the first quarter, lapping last year's credit card benefit.

Tariffs pose a key risk with potential impact on margins. The company is working to mitigate tariff impact but uncertainties remain due to dynamic trade policy. Also, the process of resetting Athleta and revitalizing Banana Republic involves execution risks.

Q: Congrats on a nice quarter. I wanted to focus on tariffs here. You said you can mitigate more than half of the impact. And I'm just curious, is there room for that to be bigger both this year and then over time? Thanks a lot.

A: Richard and Katrina discussed that they have strategies to mitigate over half the tariff impact, have been diversifying sourcing, and will continue to mitigate with adjustments to sourcing, manufacturing, assortments while staying committed to long-term strategy.

Q: Good afternoon and congratulations on the quarter and the Gap brand in particular. It looked like they were really driving full-price selling. Can you talk about success in getting Gen Z, millennial and striking balance?

A: Richard said Gap brand is executing well, with innovation, marketing, collaborations attracting new generations while reinforcing existing customers, showing strong full-price sell-through.

Q: Katrina, follow-up on mitigation practices, where does pricing fall?

A: Katrina said outlook separates tariff impact, estimated $100-150M net impact, will mitigate over time with same levers, committed to long-term strategy.

Q: Can you talk about comp drivers by brand, traffic, ticket?

A: Richard and Katrina discussed brand share gains in categories like denim and active, Katrina mentioned traffic and average transactions drove comps, AUR down modestly due to Athleta promotions.

Q: How are you thinking about marketing spend and success of campaigns?

A: Richard said marketing is more effective, spending less but generating more revenue, focusing on social media, testing tactics, and seeing progress in customer acquisition and engagement.