Gap Inc CEO Richard Dickson said the turnaround at Athleta is taking longer than expected, but the retailer remains committed to rebuilding the struggling activewear brand.
“Athleta is an important brand in the portfolio,” Dickson said on CNBC’s “Mad Money” on Friday. “We are in the rebuild year.”
On Thursday, Gap reported weaker-than-expected results for Athleta, where first-quarter sales fell 12% to $270 million and comparable sales declined 11%. On the company’s earnings call, management described Athleta as a “slower rebuild,” warning second-quarter trends are expected to remain similar to the first quarter. Athleta’s comp sales also were down 10% and 11% in the fourth and third quarters of last fiscal year, reflecting its challenges.
Athleta’s woes aren’t the only problem facing Gap right now.
Shares of the retailer plunged 17% Friday after weakness at Old Navy — Gap’s largest brand by revenue — overshadowed strength elsewhere in the portfolio. Old Navy posted 1% comparable sales growth in the quarter, below analyst expectations of 3%, as softer demand in seasonal categories like dresses weighed on results and prompted Gap to lower its full-year sales outlook.
Still, Dickson said Gap sees a path to recovery for Athleta under the brand’s CEO Maggie Gauger, who joined last August and has been leading an overhaul of the business. During the pandemic era, Athleta had been a buzzy growth driver for Gap, which also owns Old Navy and its namesake brand.
“She streamlined the assortment considerably, which is resulting in better [average unit retail], better margins, even with a challenging top line,” Dickson said.
Gap has also reshaped leadership, improved creative execution and begun rolling out new merchandise that management believes is resonating better with shoppers.
“We’ve gotten some new merchandise in. It’s checking really well,” Dickson said. “It’s small, they’re early reads, but we do believe that this brand has strength to deliver.”
Athleta, which ranks as the fifth-largest activewear brand in the category, remains an important long-term growth opportunity for Gap, according to Dickson.
“It’s on us to prove that,” Dickson said, adding that the company expects “slight improvement” in the second half of the year.
“We believe we’ll continue to chip away at this and find the growth pattern for Athleta,” he said.
