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GI

GAP INC (GPS)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 FY2024 delivered another beat: EPS $0.54 vs $0.37 consensus and revenue $4.15B vs $4.07B; shares spiked ~17% post-print as the turnaround narrative strengthened .
  • Comparable sales rose 3% with brand-level strength (Gap +7%, Old Navy +3%, Banana Republic +4%) offset by Athleta (-2%); gross margin held at 38.9% and operating margin was 6.2% .
  • FY2025 outlook: net sales +1–2%, slight gross margin expansion, SG&A slight leverage, operating income +8–10%; dividend raised to $0.165/share; Q1 guidance “flat to up slightly” on sales .
  • Cash and FCF discipline intact: year-end cash, equivalents, and ST investments ~$2.6B; FY2024 free cash flow ~$1.0B; 3M shares repurchased for ~$$75M in Q4 .

What Went Well and What Went Wrong

  • What Went Well
    • Beat on both EPS and revenue vs consensus; continued comparable sales momentum and market-share gains for the eighth consecutive quarter .
    • Margin quality: gross margin 38.9% (flat YoY), operating margin 6.2% (+120 bps YoY) amid disciplined promotions and SG&A leverage in the year .
    • Brand reinvigoration: Gap and Old Navy drove strength; CEO highlighted “perform while we transform” with tighter operational rigor and culturally relevant marketing .
  • What Went Wrong
    • Athleta remains a drag (comps -2%); management flagged the need to better excite core consumers in holiday quarter .
    • Headline net sales down 3% YoY due to the loss of the 53rd week; store sales -4% and online -2% despite comp strength .
    • Near‑term tone balanced: Q1 FY2025 sales guide “flat to up slightly” and ongoing Athleta reset imply choppy quarterly cadence despite medium‑term confidence .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Billions)$3.70 $3.80 $4.15
Diluted EPS ($USD)$0.54 $0.72 $0.54
Gross Margin %42.6% 42.7% 38.9%
Operating Margin %7.9% 9.3% 6.2%
Net Income ($USD Millions)$206 $274 $206

Segment breakdown (Q4 FY2024 net sales):

SegmentQ4 2023 (14 weeks)Q4 2024 (13 weeks)
Old Navy Global ($USD Billions)$2.29 $2.21
Gap Global ($USD Billions)$1.01 $0.98
Banana Republic Global ($USD Billions)$0.57 $0.55
Athleta Global ($USD Billions)$0.42 $0.40
Other ($USD Billions)$0.02 $0.02
Total ($USD Billions)$4.30 $4.15

KPIs (Q4 FY2024 unless noted):

KPIValue
Comparable Sales (Gap Inc.)+3%
Old Navy Comps+3%
Gap Brand Comps+7%
Banana Republic Comps+4%
Athleta Comps-2%
Online Sales Mix41% of net sales
Store/Online Sales Change YoYStore -4%, Online -2%
Year-end Cash & ST Investments~$2.6B (FY2024)
FY2024 Free Cash Flow~$1.0B
FY2024 Capex~$447M
Q4 Share Repurchases~3M shares; ~$75M

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales Growth (YoY)FY2025N/A (initial)~+1% to +2%Initiated
Gross MarginFY2025N/A (initial)Slight expansionInitiated
SG&A LeverageFY2025N/A (initial)Slight leverage; ~$150M cost savings plansInitiated
Operating Income GrowthFY2025N/A (initial)+8% to +10%Initiated
Dividend per ShareQ1 FY2025$0.150 (Q4 FY2024)$0.165Raised
Q1 Net SalesQ1 FY2025N/A“Flat to up slightly”Initiated
Store FootprintFY2025N/A~35 net closures (majority Banana Republic)Initiated

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 FY2024)Previous Mentions (Q3 FY2024)Current Period (Q4 FY2024)Trend
Brand reinvigoration & marketingEmphasis on cultural relevance; brand playbook; comps +3% Reinforcement of “perform while we transform”; market share gains Gap “is back in cultural conversation”; continued share gains Improving
Margin disciplineGM +500 bps; OM 7.9% GM 42.7%; OM 9.3% GM 38.9%; OM 6.2% (calendar headwind) Stable to slightly lower (seasonality/cycle)
Athleta resetComps -4%; ongoing reset Comps +5%; inflection signs Comps -2%; work to do with core consumer Mixed
Tariffs/macroN/AWeather noted as a headwind in kids/baby Tariff impact embedded; expected to be minimal Managed
Supply chain/inventoryInventory discipline (down 5%) Continued inventory control; operational rigor “Control the controllables”; 2025 inventory aligned to improved discipline Improving

Management Commentary

  • “We ended the year delivering another successful quarter, exceeding financial expectations and gaining market share for the 8th consecutive quarter.” — Richard Dickson, CEO .
  • “Considering ~1–2% net sales growth combined with slight gross margin expansion and SG&A leverage, we see a clear path to delivering 8–10% operating income growth in fiscal 2025.” — Katrina O’Connell, CFO .
  • “Gap is back in the cultural conversation… big ideas and brand narratives have been reignited.” — Richard Dickson .

Q&A Highlights

  • Athleta trajectory: management candid that holiday assortment did not fully excite core consumer; the brand reset continues with expectations for choppy quarter-to-quarter performance .
  • Tariffs: embedded in guidance with relatively minimal margin impact; less than 10% sourcing from China in FY2024 .
  • Kids/baby category: noted weather sensitivity; strong back-to-school initially but unseasonably warm conditions later weighed on performance .
  • Store fleet optimization: ~35 net closures in FY2025, primarily Banana Republic, aligning footprint with consumer trends .

Estimates Context

  • Q4 FY2024 actual vs Wall Street consensus: EPS $0.54 vs $0.37; revenue $4.15B vs $4.07B (consensus from LSEG as reported by CNBC). S&P Global consensus data was unavailable via our system for this quarter .
  • Implications: Street likely to raise FY2025 operating income forecasts toward 8–10% given management’s framework and sustained comp/margin discipline; Q1 caution (“flat to up slightly” sales) may temper near-term sales expectations .

Key Takeaways for Investors

  • The beat-and-raise dynamic remains in place: strong Q4 vs consensus and constructive FY2025 margin/operating income guide support multiple expansion near-term .
  • Mix matters: Gap and Old Navy strength offset Athleta softness; continued brand reinvigoration is driving market-share gains even as headline sales face calendar headwinds .
  • Margin cadence: FY2025 calls for slight GM expansion and SG&A leverage; monitor promo intensity and Athleta progression as potential swing factors .
  • Cash return: dividend increased to $0.165 and buybacks active; balance sheet optionality supports ongoing capital returns .
  • Near-term trading setup: strong print and 17% after-hours spike reflect renewed confidence; Q1 sales guide and Athleta execution are the key watch‑items for sustaining momentum .
  • Medium-term thesis: operational rigor, brand reinvigoration, and margin discipline (with minimal tariff headwind) underpin a credible path to mid‑single‑digit sales growth and HSD operating income growth in FY2025 .

Additional sources for prior quarters used for trend analysis:
Q3 FY2024 press release and transcript ; Q2 FY2024 press release and transcript .