How Gap Inc. Scored Big in 2024

When Richard Dickson joined Gap Inc. as president and chief executive officer in August 2023 and brought a fresh approach to the long-troubled retailer, change for the better was already happening.

Senior executives at the Gap and Old Navy brands had been at work for months modifying the businesses and correcting mistakes of the past, well before Dickson arrived at the San Francisco headquarters.

But Dickson, fresh off his stint as president and chief operating officer of Mattel, where he helped revive Barbie, quickly introduced a new playbook to revive all four brands in Gap Inc.’s portfolio, and has been reshaping its culture, rekindling the spirit of innovation and creativity. He’s also accelerated change.

Last Thursday, the fruits of all the labor became quite visible, with the retailer posting some strong fourth-quarter results, including comparable sales up 7 percent at Gap brand, up 3 percent at Old Navy, and up 4 percent at Banana Republic, while Athleta was flat. Overall, comparable sales, driven by strong shopper response to denim and active categories, rose 3 percent, marking the retailer’s fourth straight quarter of comp gains.

While those comps are impressive, 2023 numbers were not very tough to beat. In the fourth quarter of 2023, comparable sales were flat. Comparable sales for all of 2023 were down 2 percent.

Still, Gap Inc. reported 2024 fourth-quarter net income up 11 percent to $206 million, compared to net income of $185 million, in the year-ago period, indicating the company is managing its business well. The company maintains a healthy balance sheet, reporting $2.6 billion in cash, cash equivalents and short-term investments at the end of the year, an increase of 38 percent from the prior year, and free cash flow of $1 billion.

Dickson’s message to investors and the retail fashion industry was, “We continue to perform while we transform.” Gap Inc., he said, has evolved “from fixing the fundamentals to continuous improvement through innovation.”

That implies a business that’s been firmly turned around, after decades of being down in the dumps, and changes made will continue to pay off in future quarters. Wall Street rewarded the 2024 performance, pushing the stock price up 16 percent on Thursday, and another 19 percent, or $3.67, to close at $23.15 Friday afternoon.

So what’s behind Gap Inc.’s gains?

“They’ve been working to elevate the product at Gap and model themselves after many contemporary brands out there, like Ulla Johnson and Frame. The fashion is much better, and importantly, there’s consistency in terms of the fashion,” explained Janet Joseph Kloppenburg, president of JJK Research Associates.

“They’re also sourcing faster,” Kloppenburg added. “When a trend like the barrel-leg jean comes out and everybody wants it, they have been able to get it in season and customers can get it for 30 percent of the price you see at some other specialty brands. The Gap has done a very good job of bringing the product in, and integrating it with very strong marketing to entice the customer, mostly through social media. They’ve done some very successful collaborations including with Dôen and Cult Gaia, which are really relevant higher-end contemporary brands, and they’ve done it in the men’s and women’s businesses.”

At Old Navy, Kloppenburg said more “relevant” product has been flowing into the stores frequently, with a greater focus on denim. Kloppenburg characterized the current assortment as “elevated.” She compared some of Old Navy’s fashion to what’s at Gap or Frame.

“Something that looks like Gap at Old Navy makes the customer feel they have access to relevant fashion at prices the family can afford.”

Kloppenburg also considers Old Navy’s multicategory approach selling activewear, wear-to-work, casual and sleep as a competitive advantage. “I think Old Navy is taking market share from Kohl’s and moderate department stores like Dillard’s,” she said.

Asked if the turnaround is a lasting one, Kloppenburg replied, “I think it’s very sticky.”

TD Cowen, in a report on Gap Inc., wrote, “We are impressed with Gap’s merchandise execution and financial discipline and believe there is a pathway to sustainable top-line growth combined with margin expansion. We acknowledge a tough macro backdrop and difficult comparisons in 1H25. That said, Gap is navigating prudently and continues to focus on reinvigorating the brands. We think guide is sensible with potential room for upside.”

Morgan Stanley called Gap Inc. “a specialty standout” in a research report issued Friday. “Not only did Q4 results offer further evidence that brand reinvigoration/turnaround strategies are proving successful, but they also make for a consistent performance track record under new management, e.g., beating earnings per share in every quarter since CEO Dickson has joined, and raising fiscal-year guidance in every quarter of ‘24.

“Put differently,” the report continued, “Our turnaround conviction is building — a key reason why we upgraded Gap stock in mid-2024….Gap remains one of our favored names within specialty retail. Our $30 price target is unchanged, and offers 30 percent upside from here.”

Dickson’s playbook for the Gap Inc. portfolio calls for, as he once told WWD, “always championing original, trend-right products and ensuring they’re the season’s canvas for self-expression, and linking the product story with popular culture to drive relevance and demand.”

The playbook also calls for “true influencer strategies to further drive relevance; connecting with customers in experiential ways across digital channels, online and in stores, and executing with higher standards.”

Dickson is the first merchant to lead Gap Inc. in more than two decades. The previous four CEOs were not considered merchants or fashion executives, with their expertise largely in non-merchandise areas. The last true merchant running Gap was Millard “Mickey” Drexler, who changed the way Americans dressed by masterminding the retailer’s growth and the launch of Old Navy.

Gap brand’s spring 2024 season, called Linen Moves, represented the first expression of Dickson’s playbook, and spotlighted linen, music, dance and South African singing star Tyla, along with a diverse cast of models in comfortable, relaxed fits and soft pastels, projecting a minimalist aesthetic and Gap’s classic American style. Gap’s fall 2024 campaign,”Get Loose,” spotlighted denim styles and featured pop star Troye Sivan and the dance group CDK Company.

Last quarter, Gap brand’s comparable sales rose 7 percent to $980 million, and were down 3 percent on a net basis, but there was one less week in the fourth quarter of 2024 compared to the year-ago period.

“Gap is back in the cultural conversation. This brand was built on strong product narratives, with brilliant marketing expressed through big ideas. And over the past year, each of these were reignited,” Dickson said on a conference call with investors and retail analysts on Thursday.

He said Gap brand’s 7 percent comp marked its fifth consecutive quarter of positive comps and the highest quarterly comp in three years. “This strong performance was fueled by innovation, product newness and compelling marketing with a social-first approach.”

The momentum in women’s continued in the fourth quarter, men’s also performed well, and there were signs of early improvement in kids and baby merchandise, Dickson said. He added that “big ideas’” fueled key categories like fleece, denim and sweaters. Gap’s new Cashsoft fabric, which feels like cashmere but isn’t cashmere, also spurred selling. Products were “trend-right” and amplified with “culturally relevant messaging,” Dickson said. Gap’s latest campaign features actress Parker Posey euphorically dancing.

Turnaround efforts at Gap brand were in motion before Dickson became Gap Inc. CEO, and possibly even before joining the company’s board in November 2022. In mid-2024, Mark Breitbard, president of the Gap brand, told WWD, that over the past few years “a pretty heavy lift” was occurring at the brand involving an “operational clean-up” of stores, products and styling, and the introduction of Cashsoft. There was negative impact from the sale of Gap China and the shutdown of the failed Yeezy Gap program.

“We are more responsive and fluid than we’ve ever been,” Breitbard said at the time. “We have plans to deliver product every month and have small drops in between that.” He said Gap will “move with the consumer” and was poised to “chase styles.…We will flow product when we need to be flowing product….Working with talent who embody the spirit of originality is not just a choice, but a commitment to our brand’s heritage,” said Breitbard last year.

Old Navy posted a 3 percent fourth-quarter comp sales gain, which was the value-oriented, family brand’s eighth consecutive quarter of market share gains. “Old Navy has been connecting our customers with products they want through compelling storytelling and executing with clarity in price,” Dickson said Thursday. “The brand is gaining more relevance, as demonstrated by our digital dialogue, notably our strong social and influencer engagement.”

Denim and active assortments were pumped up last year, with “a consistent drumbeat of innovation and newness across these key categories,” Dickson said. “We have been putting insights into active with product innovation, leveraging our scale and expertise and executing with excellence, and the results are showing up on the scoreboard. Old Navy leaned into denim with an expanded offering, a dynamic in-store and online experience supported by a fall campaign expressing our evolving brand identity.”

Trending wide, loose and barrel fits, did well. Dickson also said that in the fourth quarter, “dynamic fleece and Powersoft” were great examples of innovation that drove Old Navy’s strength in active, and “we are bringing more innovation style and value in 2025,” citing the recently launched StudioSmooth active collection. “Old Navy’s merchandising narratives and style are presenting better, and our in-store and online communication has improved with more clarity around pricing and more compelling marketing promoting great value,” Dickson said.

Old Navy has been showing progress for some time. In June 2024, Horacio “Haio” Barbeito, the president and CEO of Old Navy, told WWD that the retailer had been on “a pretty good run — three consecutive quarters of strong top-line and bottom-line performance, but really six consecutive quarters of discipline, inventory improvement and profit improvement. This is not an overnight thing.”

Historically the cash cow of Gap Inc., Old Navy had distanced itself from intensive promoting, inventory excess and some botched merchandising that led to a change in command. Barbeito joined Old Navy in 2022, succeeding Nancy Green, who since last February has been running Beyond Yoga. “We are actually in reasserting mode. We’re stabilizing the ship,” Barbeito told WWD last June.

At Banana Republic, Dickson during the conference call cited “fundamental fixes through 2024 like “leaning’ into classics, focusing on fit and rebuilding trust. We’re beginning to see signs of stabilization, with the early results showing up in the fourth quarter,” Dickson said, citing comps up 4 percent in the fourth quarter and market share gains. “Women’s drove the acceleration at the brand with better fundamentals across pricing, product and design, which translated incredibly well, most notably for holiday occasion dressing. The brand continued to build on the strength in the men’s division and leaned into classics with a stronger cashmere point of view, which resonated with consumer,” Dickson said.

Athleta, in 2024, “stabilized” with comp sales flat. “The brand reentered the cultural, wellness and sports conversation through major activations that engaged key brand partners like Simone Biles and Katie Ledecky on the world stage in Paris,” where the Summer Olympics were held. Two WNBA stars, Lexie Hull and Kate Martin, more recently also became part of Athleta’s “Power of She” collective, which strives to elevate Athleta’s brand recognition and have top athletes appear in Athleta apparel and ads. Members of the collective also help raise funds for women’s and girls’ causes, serve as mentors, attend brand events and advise Athleta on product development and issues in sports.

Dickson said Athleta increased the number of new and reactivated customers but acknowledged challenges and volatility there. While the fourth quarter saw some positive sales results on more fashionable items, the core side of the business struggled. “Athleta has made progress in a number of areas this past year. However, we are still in the process of resetting the brand, which in the near term may result in choppy quarterly performance,” Dickson said.

During the call questions arose about designer Zac Posen’s role and contributions since he joined Gap Inc. as creative director and chief creative officer of Old Navy a year ago.

“He’s been bringing significant impact on many creative aspects,” Dickson said. “He’s uniting us with a design-led thought process, and igniting the creative spirit of the company. We’ve been curating cultural moments where our brands and products have been really taking center stage.”

More specifically, Dickson said Posen focuses on attention to detail and fit across the four brands.

Posen’s Gap gown for Oscar-winning actress Da’Vine Joy Randolph worn at the 2024 Met Gala created a lot of buzz. More recently, he launched GapStudio, the brand’s stab at evening chic, worn by actor Timothée Chalamet at this year’s Oscars.

Last year, Gap had $5.1 billion in SG&A expenses. In addition to eliminating $100 million last year, the goal this year is to cut $150 million in expenses partly by cutting “low-value work” and “redeploying” into higher-value projects, explained chief financial officer Katrina O’Connell. “So the $150 million we’re going after in 2025 is across technology, marketing, overhead and store expenses, and as we think about reinvestments, we’re leveraging AI to create more elevated experiences for our customers with things like personalization, empowering our design and development processes, and we’re modernizing our supply chain.”

The company continues to rationalize its store fleet, but at this point primarily with Banana Republic.

O’Connell said the company is testing two new brick-and-mortar experiences in Manhattan, including a Gap in the Flatiron neighborhood and a Banana Republic in SoHo. “More to come as we start to evaluate the performance of those,” O’Connell said.

“We do believe there are areas where we can better leverage technology to ultimately reduce the customer pain points,” O’Connell said. “We’re continuing to evaluate and optimize our retail footprint in conjunction with the evolving consumer landscape, and we believe collectively that we have a great advantage based on our scale.”