Q1 2024 The Gap Inc Earnings Call
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Speaker Change: Good afternoon, ladies and gentlemen, I would like to welcome everyone to the Gap, Inc. First quarter 2024 earnings conference call.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: For those analysts who wish to participate in the question and answer session. After the presentation. You May now press star one to enter the Q&A queue.
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Speaker Change: I would now like to introduce your host Emily <unk> director of Investor Relations.
Unknown Executive: Good afternoon, everyone. Welcome to Gap Inc.'s first quarter fiscal 2024 earnings conference call. Before we begin, I'd like to remind you that the information made available on this conference call contains forward-looking statements that are subject to risks that could cause our actual results to be materially different. For information on factors that could cause our actual results to differ materially from any forward-looking statements, please refer to the cautionary statements contained in our latest earnings press release.
Speaker Change: Good afternoon, everyone. Welcome to Gap, Inc. 's first quarter fiscal 2024 earnings conference call before we begin I'd like to remind you that information made available on this conference call contains forward looking statements that are subject to risks that could cause our actual results to be materially different.
Unknown Executive: The risk factors described in the company's annual report on Form 10-K filed with the Securities and Exchange Commission on March 19, 2024, and any subsequent filings with the SEC, all of which are available on GapInc.com. These forward-looking statements are based on information as of today, May 30, 2024, and we assume no obligation to publicly update or revise our forward-looking statements. Our latest earnings release and the accompanying materials available on GapInc.com also include descriptions and reconciliations of any financial measures not consistent with generally accepted accounting principles. Also joining me on the call today are Chief Executive Officer Richard Dixon and Chief Financial Officer Katrina O'Connell. With that, I'll turn the call over to Richard.
Speaker Change: For information on factors that could cause our actual results to differ materially from any forward looking statements. Please refer to the cautionary statements contained in our latest earnings press release. The risk factors described in the Companys annual report on Form 10-K filed with the Securities and Exchange Commission on March 19th 2024, and any subsequent.
Speaker Change: Filings with the Securities and Exchange Commission, all of which are available on gap, Inc. Dot com.
Speaker Change: These forward looking statements are based on information as of today May 32024, and we assume no obligation to publicly update or revise our forward looking statements.
Speaker Change: Our latest earnings release, and the accompanying materials available on gap, Inc. Dot Com also include descriptions and reconciliations of any financial measures not consistent with generally accepted accounting principles.
Richard Dickson: Good afternoon, and thank you for joining us. During today's call, I'll provide an update on our first quarter performance and progress in the context of our strategic priorities. Then Katrina will walk you through our detailed financial results and share our outlook before we open up the call for questions. Gap Inc delivered a strong quarter that exceeded expectations across key metrics.
Speaker Change: Joining me on the call today are Chief Executive Officer, Richard Dickson, and Chief Financial Officer Katrina O'connell with that I'll turn the call over to Richard.
Richard Dickson: Good afternoon, and thank you for joining us during today's call I'll provide an update on our first quarter performance and progress in the context of our strategic priorities.
Richard Dickson: Then Katrina will walk you through our detailed financial results and share our outlook before we open up the call for questions.
Richard Dickson: Gap, Inc, delivered a strong quarter that exceeded expectations across key metrics.
Richard Dickson: Importantly, we gained market share for the fifth consecutive quarter with share gains and positive comparable sales at all brands, demonstrating improved relevance with our customers as we execute against our brand reinvigoration playbook. We are on a journey to become a high-performance house of iconic American brands that shape culture. This will take time, perseverance, and rigor.
Richard Dickson: Importantly, we gained market share for the fifth consecutive quarter with share gains and positive comparable sales at all brands demonstrating improved relevance with our customers as we execute against our brand reinvigoration playbook.
Richard Dickson: We are on a journey to become a high performing house of iconic American brands that shape culture that this will take time perseverance and rigor.
Richard Dickson: That said, I am encouraged by the momentum and results. We remain focused on our four strategic priorities, which are, first, maintaining and delivering financial and operational rigor. Second, the reinvigoration of our brands. Third, strengthening our platform. And fourth, energizing our culture.
Richard Dickson: That said I am encouraged by the momentum and results.
Richard Dickson: We remain focused on our four strategic priorities, which are first maintaining and delivering financial and operational rigor.
Richard Dickson: The reinvigoration of our brands third strengthening our platform and fourth energizing our culture.
Richard Dickson: Let's start with financial and operational rigor. The improvement in our first quarter performance reflects our continued focus on this important priority; comp sales for the company were up 3% with positive comps for all brands. Old Navy posted comps up 3%, the highest quarterly comp in three years, with continued strength in the women's business.
Richard Dickson: Let's start with financial and operational rigor the.
Richard Dickson: The improvement in our first quarter performance reflects our continued focus on this important priority.
Richard Dickson: Gap's comps were also up 3%, gaining share in men's, women's, and kids and babies. Women's Performing Well Again, driven in part by success in our Linen Moves campaign. Banana Republic comps were up 1% as the brand continues to focus on strengthening fundamentals, and Athletas comps were up 5% in the quarter, reflecting better execution against the brand strategy and encouraging signs of customer response to new product innovation. We expanded gross margin in the quarter and remained focused on managing expenses, resulting in significant operating margin expansion. We also maintain rigorous inventory discipline with first quarter levels down 15% year-over-year. We ended the quarter with $1.7 billion of cash, cash equivalents, and short-term investments on the balance sheet.
Comp sales for the company were up 3% with positive comps for all brands.
Old Navy posted comps up 3% the highest quarterly comp in three years with continued strength in the women's business.
Richard Dickson: <unk> comps were also up 3% gaining share in mens womens and kids and baby with women's performing well again driven in part by success in our Lynden moves campaign.
Richard Dickson: Banana Republic comps were up 1% as the brand continues to focus on strengthening fundamentals.
And athletic comps were up 5% in the quarter, reflecting better execution against the brand strategy and encouraging signs of customer response to new product innovation.
Richard Dickson: We expanded gross margin in the quarter and remained focused on managing expenses, resulting in significant operating margin expansion.
Richard Dickson: We also maintained rigorous inventory discipline with first quarter levels down 15% year over year.
Richard Dickson: We ended the quarter with $1 7 billion of cash cash equivalents and short term investments on the balance sheet.
Richard Dickson: Our financial footing remains strong and positions our company well for the future. Operational and financial rigor is becoming the fabric of how we work, which we will continue to reinforce through better processes and cultural accountability. And expense efficiencies will continue to be an area of focus.
Richard Dickson: Our financial footing remains strong and positions our company well for the future.
Richard Dickson: Operational and financial rigor is becoming the fabric of how we work, which we will continue to reinforce through better processes and cultural accountability and expense efficiencies will continue to be an area of focus.
Richard Dickson: Turning to our next strategic priority, we're focused on driving relevance and revenue by executing on our brand reinvigoration playbook. Each brand is at a different point in the process, but I'm encouraged by the improvements we're driving across the portfolio. We are building stronger brand identities and purpose, recently highlighted by Gap Brand championing originality with our Linen Moves campaign. In terms of trend-right products, Old Navy is seeing product improvement across the board.
Richard Dickson: Turning to our next strategic priority, we're focused on driving relevance and revenue by executing on our brand reinvigoration playbook.
Richard Dickson: Each brand is at a different point in the process, but I am encouraged by the improvements we're driving across the portfolio.
Richard Dickson: We are building stronger brand identities and purpose recently highlighted by gap brand championing originality with our linen moves campaign in terms of trend right products old Navy is seeing product improvement across the board gap brand is seeing success and standing behind Big ideas Banana Republic is making head.
Richard Dickson: Gap Brand is seeing success in standing behind big ideas, Banana Republic is making headway with its Classics line, and Athleta Product Innovation is gaining traction. Our products are being amplified through more compelling storytelling across each brand, cutting through with clarity. Better differentiate.
Richard Dickson: With its classics line and athletic product innovation is gaining traction.
Our products are being amplified through more compelling storytelling across each brand.
Richard Dickson: Cutting through with clarity and better differentiation.
Richard Dickson: Cultural relevance and marketing are starting to show up in metrics that matter, like buzz, consideration, and brand relevance. We are working to provide our customers with a more engaging omnichannel experience with improved digital execution, new layout, and visual merchandising tests in our stores, and a clearer and compelling pricing strategy. And we aim to execute with excellence in-store and online across these pillars. Each of these are early proof points of the playbook in action.
Cultural relevance and marketing are starting to show up in metrics that matter like buzz consideration and brand relevance.
Richard Dickson: We are working to provide our customers with a more engaging omnichannel experience with improved digital execution, new layout and visual merchandising tests in our stores and a clearer and compelling pricing strategy.
Richard Dickson: And we aim to execute with excellence in store and online across these pillars.
Richard Dickson: Each of these are early proof points of the playbook in action over time, we expect to see this unfold more consistently and more holistically.
Richard Dickson: Over time, we expect to see this unfold more consistently and more holistically. Now, I'd like to update you on the progress of each of our brands. At Old Navy, we are reasserting the brand and being more deliberate and consistent about how we express the brand, clearly communicating fashion and value for the family. Our brand acceptance scores for quality, impression, and reputation are strong, giving us confidence that Old Navy is reasserting its position as the style authority in the value space.
Richard Dickson: Now I'd like to update you on the progress of each of our brands.
At old Navy, we are reasserting, the brand and being more deliberate and consistent about how we express the brand clearly communicating fashion and value for the family.
Richard Dickson: Old Navy's brand acceptance scores for quality impression and reputation is strong giving us confidence that old Navy is reasserting its position as the style authority in the value space.
Richard Dickson: In the first quarter, we continue to focus on driving strength in the Old Navy women's business while also highlighting looks for the family through campaigns featuring spring colors and fabrications like linen. A key category for the brand is active, where Old Navy is the fifth largest brand in the state.
Richard Dickson: In the first quarter, we continued to focus on driving strength in the old Navy women's business, while also highlighting looks for the family to campaigns featuring spring colors and fabrications like Lindon.
Richard Dickson: A key category for the brand is active we're old Navy is the fifth largest brand in the space.
Richard Dickson: We are driving performance with intent in this category with share gains for the third consecutive quarter. We have also made a concerted effort to build greater trust with our consumers through precision and clarity around the combination of storytelling and pricing with WOW Prices in-store and online. We continue to test opportunities to enhance the customer experience in the store through physical layout and new merchandising strategy. These actions are driving better consistency and experience, and the consumer is noticing, enabling us to win market share in key categories like active and dresses in the quarter. At Gap, we are reigniting the brand, working to deliver confident, trend-right products at the price-right and expressed through big ideas and culturally relevant messaging. Linen Moves is a great example of taking a trend-right product and amplifying it.
Richard Dickson: We are driving outperformance with intent in this category with share gains for the third consecutive quarter we.
Richard Dickson: We have also made a concerted effort to build greater trust with our consumers through precision and clarity around the combination of storytelling and pricing with Wow prices in store and online.
Richard Dickson: We continue to test opportunities to enhance customer experience in the store through physical layout and new merchandising strategies.
Richard Dickson: These actions are driving better consistency and experience and the consumer is noticing enabling us to win market share in key categories like active and dresses in the quarter.
Speaker Change: At gap, we are re igniting the brand working to the liver confident trend right products price rate and expressed through big ideas and culturally relevant messaging.
Speaker Change: Linden moves is a great example of taking trend right product and amplifying it turning it into a big idea expressed through compelling in store merchandising and strong digital execution.
Richard Dickson: Turning it into a big idea expressed through compelling in-store merchandising and strong digital execution. During the quarter, we saw outsized results within this category, with Gap linen sales up double digits versus last year. Building on this success and the continuation of the campaign, new deliveries will include new colors and new styles as we aim to secure a leadership position in this important seasonal fabrication. While this campaign itself is encouraging, our focus going forward is relentless repetition of these types of creative expressions. Collaborations also remain an important part of our brand strategy. The recent launch of our limited-edition 51-piece collection with California clothing label Doin is generating buzz, driving both relevance and revenue for the brand.
Speaker Change: During the quarter, we saw outsized results within this category with GAAP Linden sales up double digits versus last year.
Speaker Change: Building on this success and the continuation of the campaign new deliveries will include new colors, and new styles as we aim to secure a leadership position in this important seasonal fabrication.
Speaker Change: While this campaign itself is encouraging our focus going forward is on relentless repetition of these type of creative expressions.
Speaker Change: Collaborations also remain an important part of our brand strategy.
<unk> launch of our limited edition 51 piece collection with California clothing labeled Darwin is generating buzz driving both relevance and revenue for the brand. These examples demonstrate the progress unfolding through better storytelling improved assortments and our stronger brand identity are.
Richard Dickson: These examples demonstrate the progress unfolding through better storytelling, improved assortments, and our stronger brand identity. Our stores are presenting a clearer brand narrative, and we're showing up for the customer with healthier in-stock levels. These actions are building a stronger foundation that we believe will drive more consistent performance over time. Turning to Bonata Republic, we are focusing on reestablishing this brand to thrive in the premium lifestyle. The work to fix the fundamentals is underway, and we are starting to see green shoots in the first quarter with positive comp growth, a notable improvement versus the fourth quarter.
Speaker Change: Stores are presenting a clearer brand narrative and we're showing up for the customer with healthier in stock levels.
Speaker Change: These actions are building a stronger foundation that we believe will drive more consistent performance over time.
Speaker Change: Turning to Banana Republic, we are focusing on reestablishing this brand to thrive in the premium lifestyle space.
Speaker Change: The work to fix the fundamentals is underway and we are starting to see green shoots in the first quarter with positive comp growth a notable improvement versus the fourth quarter.
Richard Dickson: The National Republic classics and finest fabrics performed well, benefiting from foundational improvements including increased product depth in stores, elevated marketing, and better site execution. With the close of the first quarter, we decided to commence a leadership transition at the branch.
Speaker Change: Banana Republic classics, and finest fabrics performed well benefiting from foundational improvements, including increased product depth and stores elevated marketing and better site execution.
Speaker Change: With the close of the first quarter, we decided to commence a leadership transition at the brand.
Richard Dickson: We see a significant opportunity for Banana Republic and are working to set the stage for improved future performance under new leadership. We are resetting Athleta, a brand with significant growth potential and a clear and distinct brand positioning rooted in the power of she. Core Bottoms performed well in the quarter, giving us confidence as we accelerate this Loyalty Gateway category, and heat and excitement were evident in the response to our limited edition drop.
Speaker Change: We see a significant opportunity for banana Republic and are working to set the stage for improved future performance under new leadership.
Speaker Change: We are resetting athleta.
Speaker Change: Brand with significant growth potential and a clear and distinct brand positioning rooted in the power of <unk>.
Speaker Change: Core bottoms performed well in the quarter, giving us confidence as we accelerate this loyalty gateway category.
Speaker Change: Brand heat and excitement were evident in the response to our limited edition drops.
Richard Dickson: This year has been a major step forward for women's sports, as female athletes globally are beginning to get the attention and credit they've long deserved. It's an important cultural moment and one that we're proud to authentically participate in as the largest athletic brand singularly focused on empowering women and girls. Athleta has developed the power of the She-Collegation, comprised of legendary athletes including Simone Biles and Katie Ledecky, serving as game-changing brand ambassadors united in their mission to empower women and girls.
Speaker Change: Our innovative fabric power move successfully launched with train and run products contributing to the significant improvement in results in the first quarter.
Speaker Change: This year has been a major step forward for women's sports is female athletes globally are beginning to get the attention and credit they've long deserved.
Speaker Change: It's an important cultural moment and one that we're proud to authentically participate in as the largest athletic brand singularly focused on empowering women and girls.
Speaker Change: Atlanta has developed the power of she collected comprised of legendary athletes, including Simone Biles and Katie Le Deci, serving as game changing brand ambassadors United in their mission to empower women and girls.
Richard Dickson: The positive signs we're seeing in Athleta are encouraging, and we believe the team is on the right track. Moving to the third strategic priority, strengthening our operating platform. I talked to you last quarter about opportunities to drive scale and efficiency across our organization and to better support our brands through our platform functions like supply chain, technology, and media. After conducting an internal assessment that I mentioned last quarter, we identified an opportunity to implement a new operating model for media activation that will enable us to up-level our marketing capabilities and offer our brand teams better leverage.
Speaker Change: The positive signs we are seeing at Athleta are encouraging and we believe the team is on the right track.
Speaker Change: Moving to the third strategic priority strengthening our operating platform.
Speaker Change: To you last quarter about opportunities to drive scale and efficiency across our organization and to better support our brands through our platform functions like supply chain technology and media.
Speaker Change: After conducting an internal assessment that I mentioned last quarter, we identified an opportunity to implement a new operating model for media activation that will enable us to up level, our marketing capabilities and offer our brand teams better leverage as.
Richard Dickson: As part of this effort, during the first quarter, we selected a new premier media agency partner who will help us to leverage our media dollars to be more effective in creating demand and building brand equity. This new model and approach will centralize and optimize our media mix across the marketing funnel and align measurement and metrics across brands. It will also elevate our ability to use content as a strategic differentiator for cultural amplification, supporting a key element of our brand reinvigoration playbook.
Speaker Change: As part of this effort during the first quarter, we selected a new Premier Media agency partner, who will help us to leverage our media dollars to be more effective in creating demand and building brand equity.
Speaker Change: This new model and approach will centralize and optimize our media mix across the marketing funnel and align measurement and metrics across brands.
Speaker Change: It will also elevate our ability to use content as a strategic differentiator for cultural amplification supporting a key element of our brand reinvigoration playbook.
Richard Dickson: This is a great example of strengthening our platform and leveraging the scale of Gap Inc. to bring greater value and capabilities to our individual brands. We look forward to sharing more as we initiate this important partnership.
Speaker Change: This is a great example of strengthening our platform and leveraging the scale of gap, Inc to bring greater value and capabilities to our individual brands we.
We look forward to sharing more as we initiate this important partnership.
Speaker Change: And our fourth strategic priority is culture.
Richard Dickson: Over the last nine months, I have hosted numerous town halls where thousands of employees from around the world tune in, both in person and virtually. The excitement is building across our organization. We are seeing more collaboration between our teams, and accountability is becoming the cultural norm. Chief People Officer Amy Thompson has been working alongside our teams to put our company values into action, evolving us into a more customer-centric organization that approaches business through a lens of curiosity and collaboration and is focused on achieving excellence. 2024 is off to a good start.
Speaker Change: Over the last nine months I have hosted numerous town halls with thousands of employees from around the world tune in both in person and virtually.
Speaker Change: The excitement is building across our organization, we are seeing more collaboration between our teams and accountability is becoming the cultural norm.
Speaker Change: Chief People Officer, Amy Thompson has been working alongside our teams to put our company values into action.
Speaker Change: Evolving us into a more customer centric organization that approaches business through a lens of curiosity and collaboration and focused on achieving excellence.
Richard Dickson: As we continue to execute our four strategic priorities, we are dialing up the exciting and thoughtful work to reinvigorate our brand. Against a backdrop of macroeconomic and geopolitical uncertainty, we performed well and delivered encouraging results in the first quarter, giving us the confidence to raise our guidance for the year. Before Katrina walks you through the detailed results, I'd like to take a moment to thank our global team across our stores, distribution centers, and headquarters, and all of our partners for their hard work and dedication as we continue to execute and unlock the power of Gap Inc. We know we have a lot of work to do, but we are excited about the opportunities ahead. And now, I'll turn the call over to Katrina for a closer look at our finances.
Speaker Change: 'twenty 'twenty four is off to a good start.
Speaker Change: As we continue to execute our four strategic priorities, we are dialing up the exciting and thoughtful work to reinvigorate our brands.
Speaker Change: Against the backdrop of macroeconomic and geopolitical uncertainty, we performed well and delivering encouraging results in the first quarter, giving us the confidence to raise our guidance for the year.
Speaker Change: Before Katrina walks you through the detailed results I'd like to take a moment to thank our global team across our stores distribution centers and headquarters and all of our partners for their hard work and dedication as we continue to execute and unlock the power of Gap Inc.
Speaker Change: We know we have a lot of work to do but we are excited about the opportunities ahead.
Speaker Change: And now I'll turn the call to Katrina for a closer look at our financials.
Katrina O'connell: Thank you, Richard, and thanks, everyone, for joining us this afternoon. We're pleased to report first quarter results ahead of our expectations, with all brands in our portfolio driving positive comparable sales and market share gains. In addition, we remained focused on the discipline we'd created around margin expansion, expense, and inventory management, and maintaining a strong balance, which resulted in notably improved operating profit and cash flow versus the prior year. The rigor we've developed is becoming core to how we operate, as Richard noted, and is enabling us to focus on what matters, driving relevance and revenue as we aspire to become a high-performance house of iconic American brands.
Katrina O'connell: Thank you Richard and thanks, everyone for joining us. This afternoon. We're pleased to report first quarter results ahead of our expectations with all brands in our portfolio driving positive comparable sales and market share gains.
Katrina O'connell: In addition, we remained focused on the discipline, we've created around margin expansion expense and inventory management and maintaining a strong balance sheet, which resulted in notably improved operating profit and cash flow versus the prior year.
Richard Dickson: The rigor we've developed is becoming core to how we operate as Richard noted and is enabling us to focus on what matters driving relevance and revenue as we aspire to become a high performing house of iconic American brands.
Katrina O'connell: Some key highlights from the first quarter include the following: Net sales and comparable sales were both up 3% ahead of our expectations, with all four brands delivering positive comparable sales in the We delivered approximately 400 basis points of gross margin and Managed SG&A dollars in line with our expectations, delivering approximately 140 base points of leverage. This resulted in an operating margin of 6.1% for Q1, a 560 basis point improvement versus last year's adjusted operating margin. And we ended the quarter with $1.7 billion of cash, cash equivalents, and short-term investments on the balance.
Richard Dickson: Key highlights from the first quarter include the following.
Richard Dickson: Net sales and comparable sales were both up 3% ahead of our expectations with all four brands delivering positive comparable sales in the quarter.
Richard Dickson: We delivered approximately 400 basis points of gross margin expansion and managed SG&A dollars in line with our expectations delivering approximately 140 basis points of leverage.
Richard Dickson: This resulted in operating margin of six 1% for Q1 of 560 basis point improvement versus last year's adjusted operating margin.
Richard Dickson: And we ended the quarter with $1 $7 billion of cash cash equivalents and short term investments on the balance sheet with the outperformance in the first quarter, we are raising our full year 'twenty 'twenty four outlook for both revenue and operating income demonstrating confidence that the progress on our four strategic priorities.
Katrina O'connell: With the outperformance in the first quarter, we are raising our full year 2024 outlook for both revenue and operating income, demonstrating confidence that the progress on our four strategic priorities is driving near-term results, as well as building a strong foundation to deliver long-term shareholder value. Now, turning to the detailed results for the quarter. Net sales of $3.4 billion increased 3% versus last year, with comparable sales up 3% as well, due to the 53rd week in fiscal 2023.
Richard Dickson: Is driving near term results as well as building a strong foundation to deliver long term shareholder value.
Richard Dickson: Now turning to the detailed results for the quarter net.
Richard Dickson: Net sales of $3 $4 billion increased 3% versus last year with comparable sales up 3% as well.
Richard Dickson: Due to the 50 <unk> week in fiscal 2023.
Katrina O'connell: In order to maintain consistency, comparable sales for the first quarter of fiscal 2024 are compared to the 13 weeks ended May 6, 2023, by brand. Starting with Old Navy, net sales were $1.9 billion, up 5% versus last year, with comparable sales up 3%. This represented the third consecutive quarter of positive comps at the brand as continued focus on operational rigor and brand reinvigoration has started to build improved consistency and performance. Turning to Gap, net sales of $689 million were flat to last year, and comparable sales were up 3%. We are proud of the hard work the teams have done over the last few years to close unprofitable stores and partner with several of our international markets. These strategic changes have begun to create a healthier core.
Richard Dickson: In order to maintain consistency comparable sales for the first quarter of fiscal 2024 are compared to the 13 weeks ended may six 2023.
Richard Dickson: By brand starting with old Navy net sales were $1 $9 billion up 5% versus last year with comparable sales up 3%. This.
Richard Dickson: This represented the third consecutive quarter of positive comps at the brand as continued focus on operational rigor and brand reinvigoration has started to build improved consistency and performance.
Richard Dickson: Turning to gap brand net sales of $689 million were flat to last year and comparable sales were up 3%.
Richard Dickson: We are proud of the hard work the teams have done over the last few years to close unprofitable stores and partner several of our international markets.
Richard Dickson: These strategic changes had begun to create a healthier core while there's work to do the recent brand reinvigoration efforts at gap have resulted in positive comp sales during the last two quarters, driven by strong marketing and product execution.
Katrina O'connell: While there's work to do, the recent brand reinvigoration efforts at Gap have resulted in positive comp sales during the last two quarters, driven by strong marketing and product execution. Banana Republic net sales of $440 million improved 2% year over year, with comparable sales up 1%. As Richard mentioned, we are working to reestablish Banana Republic and improve the fundamentals of the brand.
Richard Dickson: Banana Republic, and net sales of $440 million improved 2% year over year with comparable sales up 1%.
Richard Dickson: As Richard mentioned, we are working to reestablish banana Republic and improve the fundamentals of the brand.
Katrina O'connell: While it's still early in the journey, we are pleased to see the focus on execution at Banana Republic show up in better first quarter results. Athleta net sales of $329 million increased 2% versus last, and comparable sales were up 5% year over year, a significant improvement versus negative 10% in the fourth quarter, as consumers responded positively to the new product, brand expression, and activation, were encouraged by the outperformance of Athletic in the quarter, and remain confident in the long-term potential of this incredible brand.
Speaker Change: While it is still early in the journey. We are pleased to see the focus on execution that banana Republic show up in better first quarter results.
Speaker Change: Athleta net sales of $329 million increased 2% versus last year comparable.
Speaker Change: Comparable sales were up 5% year over year, a significant improvement versus negative 10% in the fourth quarter as consumers responded positively to the new product brand expression and Activations were encouraged by the outperformance of athletic in the quarter and remain confident in our long term potential of this incredible.
Speaker Change: Brand in.
Katrina O'connell: In the second quarter, the brand will lap the last of the prior year's heavy discounts. And as a result, we are planning second quarter net sales for Athleta to be down mid-single digits versus last year as we navigate this unique period. Now turning to gross margin for the quarter. Gross margin of 41.2% expanded 410 basis points versus last year's reported. Compared to last year's adjusted rate, gross margin expanded approximately 400 basis points. Merchandise margin expanded 330 basis points with the remaining 70 basis points from Rod Lever. The merchandise margin expansion was driven by an estimated 200 basis points of lower commodity costs, with better inventory management contributing to the remaining improvements. Now, let me turn to SG&A.
Speaker Change: In the second quarter, the brand will lap the last of the prior year's heavy discounting and as a result, we are planning second quarter net sales for athleta to be down mid single digits versus last year as we navigate this unique period.
Speaker Change: Now turning to gross margin for the quarter.
Speaker Change: Gross margin of 41, 2% expanded 410 basis points versus last year's reported gross margin.
Speaker Change: <unk> to last year's adjusted rate gross margin expanded approximately 400 basis points.
Speaker Change: Merchandise margin expanded 330 basis points with the remaining 70 basis points from Rod leverage.
Speaker Change: The merchandise margin expansion was driven by an estimated 200 basis points of lower commodity costs with better inventory management contributing to the remaining improvement.
Speaker Change: Now, let me turn to SG&A.
Katrina O'connell: SG&A was $1.2 billion in the quarter, in line with our prior outlook. SG&A of 35.2% leveraged 220 basis points versus last year's reported rate and 140 basis points versus last year's adjusted rate. First quarter operating margin of 6.1% improved 640 basis points compared to last year's reported operating margin and 560 basis points compared to last year's adjusted operating margin. Driven by Gross Margin Expansion and SG&A Leverage. Earnings per share in the quarter were $0.41 versus last year's reported loss per share of $0.05 and $0.01 of adjusted earnings per share.
Speaker Change: SG&A was $1 $2 billion in the quarter in line with our prior outlook.
Speaker Change: SG&A of 35, 2% leveraged 220 basis points versus last year's reported rate and 140 basis points versus last year's adjusted rate.
Speaker Change: First quarter operating margin of six 1% improved 640 basis points compared to last year's reported operating margin and 560 basis points versus last year's adjusted operating margin driven by gross margin expansion and SG&A leverage.
Speaker Change: Earnings per share in the quarter were 41 cents versus last year's reported loss per share of <unk>.
Speaker Change: And one cent of adjusted earnings per share.
Katrina O'connell: Now turning to the balance sheet and cash flow. We maintained disciplined inventory management, ending Q1 down 15% year-over-year. Over the last year, we have meaningfully rationalized overall inventory levels, returning to our goal of managing a healthy stock-to-sales ratio for Inventory Growth, Lag, and Sales. With that principle in mind, second quarter inventory is planned to be down in the low single-digit range versus last year. As I mentioned earlier, we ended the quarter with cash, cash equivalents, and short-term investments of $1.7 billion, an increase of 48% from last year.
Speaker Change: Now turning to the balance sheet and cash flow.
Speaker Change: We maintained disciplined inventory management, ending Q1 down 15% year over year.
Speaker Change: Over the last year, we have meaningfully rationalized overall inventory levels returning to our goal of managing a healthy stock to sales ratio where inventory growth lag sales growth.
Speaker Change: With that principle in mind second quarter inventory is planned to be down in the low single digit range versus last year.
Speaker Change: As I mentioned earlier, we ended the quarter with cash cash equivalents and short term investments of $1 $7 billion, an increase of 48% from last year.
Katrina O'connell: Net cash from operating activities was $30 million in the first quarter, driven by higher operating profits. We remain committed to delivering an attractive quarterly dividend as a core component of total shareholder return. During the quarter, we paid a dividend of 15 cents per share.
Speaker Change: Net cash from operating activities was $30 million in the first quarter driven by higher operating profit.
Speaker Change: We remain committed to delivering an attractive quarterly dividend is a core component of total shareholder returns.
Speaker Change: During the quarter, we paid a dividend of <unk> 15 per share.
Speaker Change: On May 7th our board approved maintaining that 15 cent dividend for the second quarter of fiscal 2024.
Katrina O'connell: On May 7th, our board approved maintaining that $0.15 dividend for the second quarter of fiscal 2024. As I reflect on our first quarter results, I'm encouraged by the improved financial performance, enabled by continued focus, discipline, and rigor, driving revenue growth across our portfolio of brands. Now, let me provide some details on our updated outlook, starting with full year 2024. As a result of our strong first quarter results, we are increasing our outlook for fiscal 2024, reflecting higher sales and meaningfully higher operating income growth compared to our prior expectations.
Speaker Change: As I reflect on our first quarter results I'm encouraged by the improved financial performance enabled by continued focus discipline and rigor driving revenue growth across our portfolio of brands.
Speaker Change: Now let me provide some details on our updated outlook.
Speaker Change: Starting with full year 2024.
Speaker Change: As a result of our strong first quarter results, we are increasing our outlook for fiscal 2024, reflecting higher sales and meaningfully higher operating income growth compared to our prior expectations.
Katrina O'connell: We now expect fiscal year 2024 net sales to be up slightly year over year, excluding the 53rd week, compared to our prior outlook for net sales to be roughly flat. Our first quarter performance is encouraging and gives us confidence in our revised outlook as we balance the stronger trends with other unique factors. First, as a reminder, 2024 is a 52-week year, but it will be compared in total to a 53-week year in 2020. To reiterate, the loss of the 53rd week results in a detrimental impact of approximately $160 million on fiscal 2024 net.
Speaker Change: We now expect fiscal year 2024, net sales to be up slightly year over year, excluding the 50 <unk> week compared to our prior outlook for net sales to be roughly flat.
Speaker Change: Our first quarter performance is encouraging and gives us confidence in our revised outlook as we balanced the stronger trends with other unique factors first as a reminder, 2024 is a 52 week year, but will be compared in total to a 53 week year in 2023.
Speaker Change: To reiterate the loss of the 50 <unk> week results in a detrimental impact of approximately $160 million to fiscal 2024 net sales.
Katrina O'connell: And I would like to provide more detail on the impact of the quarterly cadence. The first quarter of 2024 net sales benefited by approximately two percentage points from the timing, as we lost a low-volume week in February and added a modestly larger-volume week in May. We expect the second and third quarters to also benefit by approximately one percentage point each due to weekly shifts. The fourth quarter is more dramatically impacted as it loses November week one, which is a high volume week. The impact in the fourth quarter is expected to be a negative impact to sales of approximately seven percent. This sales loss will also impact gross margin due to Rod D leverage on the lower sales.
Speaker Change: And I would like to provide more detail on the impact of the quarterly cadence of sales in the year.
The first quarter 2024, net sales benefited by approximately two percentage points from the timing shift as we lost a low volume week in February and added a modestly larger volume week in may.
Speaker Change: We expect second and third quarter to also benefit by approximately one percentage point each due to weekly shifts.
Speaker Change: The fourth quarter is more dramatically impacted as it loses November week, one which is a high volume week the impact in the fourth quarter is expected to be a negative impact of sales of approximately seven percentage points.
Speaker Change: This sales loss will also impact gross margin due to raw deleverage on the lower sales volume.
Katrina O'connell: Second, similar to last quarter, global economic conditions remain uncertain and are top of mind. Our outlook assumes modest impacts in the first half related to the trade situation in the Red Sea, which to date have largely been in line with our expectations. Third, while recent commentary has been mixed, we are not anticipating major changes to consumer or macroeconomic dynamics in 2020. And fourth, we are maintaining our view on the potential CFPB ruling on late fees for credit cards. Our outlook continues to assume a mid-year implementation of the ruling, which we expect to be largely offset in 2024 by other levers within our credit card program.
Speaker Change: Second similar to last quarter global economic conditions remain uncertain and are top of mind, our outlook assumes modest impacts in the first half related to the trade situation and the Red Sea, which to date have largely been in line with our expectations.
Speaker Change: Third while recent commentary has been mixed we are not anticipating major changes to consumer or a macroeconomic dynamics in 2024.
Speaker Change: And fourth we are maintaining our view on the potential CFPB ruling on late fees for credit card holders.
Speaker Change: Our outlook continues to assume a mid year implementation of the ruling which we expect to be largely offset in 2024 by other levers within our credit card program.
Katrina O'connell: Moving to gross margin, we anticipate a gross margin expansion of approximately 150 basis points for the full year compared to fiscal 2023's gross margin. 38.8% as a result of better than expected first quarter results. Our Gross Margin Outlook contemplates the following facts. We expect commodity cost tailwinds in the first half of the year, which we anticipate will become largely neutral in the second half of the year, resulting in approximately 100 basis points of gross margin leverage for the full year.
Speaker Change: Moving to gross margin, we anticipate gross margin expansion of approximately 150 basis points for the full year compared to fiscal 2020 Three's gross margin.
38, 8% as a result of better than expected first quarter results.
Speaker Change: Our gross margin outlook contemplates the following factors.
Speaker Change: We expect commodity cost tailwind in the first half of the year, which we anticipate will become largely neutral in the second half of the year, resulting in approximately 100 basis points of gross margin leverage for the full year.
Katrina O'connell: We continue to take a measured view of the consumer environment in fiscal 2024 and are planning a slight benefit to gross margin from more disciplined inventory management. And we expect Rod as a percentage of sales to be relatively neutral on a year over year basis. Regarding SG&A, we continue to expect full-year SG&A of approximately $5.1 billion. In the second quarter, we expect SG&A dollars to increase roughly 5% versus last year's adjusted SG&A due to timing shifts in incentive accruals and advertising.
Speaker Change: We continue to take a measured view of the consumer environment in fiscal 2024 and are planning a slight benefit to gross margin from more disciplined inventory management and.
And we expect rod as a percentage of sales to be relatively neutral on a year over year basis.
Speaker Change: Regarding SG&A, we continue to expect full year SG&A of approximately $5 $1 billion in the second quarter, we expect SG&A dollars to increase roughly 5% versus last year's adjusted SG&A due to timing shifts and incentive accruals and advertising span.
Katrina O'connell: Overall, we are actively working to identify and drive cost efficiencies across multiple areas of the business. We will keep you updated on progress as we move through the year. When considering our first-quarter results, we are meaningfully revising our full-year 2024 operating income growth to be in the mid-40% range, compared to our prior outlook of low to mid-teen growth. We are pleased with trends quarter to date and are planning for net sales in Q2 to be up low single digits versus last. As it relates to second quarter gross margin, we expect approximately 300 basis points of improvement versus last year's gross margin of 37.6%, with commodity benefits similar to the first quarter and modest improvements related to improved inventories and rod leverage.
Speaker Change: Overall, we are actively working to identify and drive cost efficiencies across multiple areas of the business. We will keep you updated on progress as we move through the year.
Speaker Change: When considering our first quarter results were meaningfully revising our full year 2020 for operating income growth to be in the mid 40% range compared to our prior outlook of low to mid teen growth.
Speaker Change: We are pleased with trends quarter to date and are planning for net sales in Q2 to be up low single digits versus last year.
Speaker Change: As it relates to the second quarter gross margin, we expect approximately 300 basis points of improvement versus last year's gross margin of 37, 6% with commodity benefits similar to the first quarter and modest improvements related to improved inventories and rod leverage.
Katrina O'connell: In closing, we were pleased to deliver strong financial results during the first quarter, demonstrated through better sales trends, gross margin expansion, expense discipline, lean inventory, and a strong balance. The financial and operational rigor that we have worked to develop and will continue to pursue is enabling us to focus on reinvigorating our brands with the goal of generating sustainable, profitable growth and delivering value for our shareholders over the long term. With that, we'll open up the line for questions.
Speaker Change: In closing we were pleased to deliver strong financial results. During the first quarter demonstrated through better sales trends gross margin expansion expense discipline lean inventory and a strong balance sheet.
Speaker Change: The financial and operational rigor that we have worked to develop and will continue to pursue is enabling us to focus on reinvigorating our brands with the goal of generating sustainable profitable growth and delivering value for our shareholders over the long term.
Speaker Change: With that we'll open up the line for questions operator.
Katrina O'connell: Operator. Thank you. As a reminder, for those analysts who wish to participate in the question and answer session after the presentation, you may now press star 1 to enter the Q&A queue. Our first question comes from Matthew Boss with J.P. Morgan. Please go ahead.
Operator: Thank you. As a reminder, for those analysts who wish to participate in the question and answer session after the presentation, you may now press star 1 to enter the Q&A queue. Our first question comes from Matthew Boss with J.P. Morgan. Please go ahead.
Speaker Change: Thank you as a reminder, for those analysts who wish to participate in the question and answer session. After the presentation. You May now press star one to enter the Q&A queue.
Speaker Change: Our first question comes from Matthew Boss with Jpmorgan. Please go ahead.
Matthew Robert Boss: Great Thanks, and congrats on a nice quarter.
Matthew Robert Boss: So so Richard as we look across the portfolio, maybe it would help but what inning do you see each brand today and their respective reinvigoration timeline, just how best to think about runway remaining to drive further same store sales growth relative to the first quarter's 3%.
Speaker Change: And then Katrina just if you could help walk through the drivers of gross margin expansion in the second quarter and then how best to think about the cadence in the back half of the year.
Speaker Change: Thanks, Matt.
Richard Dickson: Look, I like to differentiate between our thoughts about growth in the near term and the midterm and, of course, the long term and beyond. But in the near term, we've outlined our four strategic priorities, and we are diligently focused on executing with excellence around them. We've seen good progress. It's giving us the confidence to raise our full-year guidance, which includes operating income growth in the mid 40% range versus last year. We're going to continue to make progress.
Speaker Change: Look I I like to differentiate between our thoughts about growth in the near term and the midterm.
Speaker Change: And of course long term and beyond but in in the near term we've outlined our four strategic priorities and we are diligently focused on executing with excellence around them. We've seen good progress, it's giving us the confidence to raise our full year guidance, which includes operating income growth in the mid 40% range versus loss.
Speaker Change: Year.
Speaker Change: We're going to continue to make progress we will revisit our mid and long term views on the path to unlock the value of this extraordinary portfolio and ultimately continue to execute with excellence on the day to day, we've got four brands with meaningful volume and Great Heritage, We've got a leveraged operating.
Richard Dickson: We will revisit our mid and long-term views on the path to unlock the value of this extraordinary portfolio and ultimately continue to execute with excellence on the day-to-day. We've got four brands with meaningful volume and great heritage. We've got a leveraged operating platform that provides scale and efficiency. We're executing against our priorities, and we will continue to keep everybody updated as to where we're headed on that. And then, Matt, as it relates to gross margin.
Speaker Change: Form that provides scale and efficiency, we're executing against our priorities and we will continue to.
Speaker Change: Keep everybody updated as to where we're headed on that front.
Katrina O'connell: And then Matt, as it relates to gross margin, I hope you're seeing that the rigor we've developed is really becoming core to how we operate, as Richard said. It's showing up in the stronger financial foundation, it's showing up in the recapture of commodity costs, the better assortments, and the tighter inventories, all of which are showing up in overall better gross margins. I think you heard we gave guidance today that we now expect overall margin for the year to be up at least 150 basis points for the full year, and this is about 100 basis points of commodity recapture and some modest improvements related to better inventory.
Speaker Change: And then Matt as it relates to gross margin.
Speaker Change: I hope you're seeing that the rigor we have developed is really becoming core to how we operate as Richard said, it's showing up in a stronger financial foundation, it's showing up in the recapture of commodity costs are the better assortments and a tighter inventories all of which are showing up in overall better gross margins I think.
Speaker Change: As you heard we gave guidance today that we now expect overall margin for the year to be up at least Oh, excuse me 150 basis points for the full year and this is about 100 basis points of commodity recapture and some modest improvements related to better inventory management as.
Katrina O'connell: As we think about Q2 guidance in particular, we provided guidance that margins in Q2 would be up about 300 basis points. That's roughly the 200 basis points of commodities with the balance coming from better inventory management and ROD. The only other thing I'd tell you to make sure you pay attention to is the impact in the fourth quarter of the loss of sales. That does result in a deleverage of ROD, which will impact overall fourth-quarter margins.
Speaker Change: As we think about Q2 guidance in particular, we provided guidance that margins in Q2 would be up about 300 basis points.
Speaker Change: That's roughly the 200 basis points of commodities with the balance coming from a.
Speaker Change: Better inventory management and Rod.
Speaker Change: The only other thing I'd tell you to make sure you pay attention to is.
Speaker Change: The impact in the fourth quarter to the loss of the sales that does result in deleverage of Rod, which will impact overall fourth quarter margin.
Speaker Change: Best of luck.
Speaker Change: Yeah.
Matt: Thanks, Matt.
Operator: Our next question comes from Robert Drbul on behalf of Guggenheim. Please go ahead.
Speaker Change: Our next question comes from Robert <unk> with Guggenheim. Please go ahead.
Robert Scott Drbul: Hi, um, I just got a couple of questions for you. I think the first one is, are there opportunities for the brands within your portfolio to share information around how products are selling so, you know, like a company could blow it out to all divisions like you did with linen? And then the second question I have is, you know, on the recent Gap shirt dress. I think Zach Posen launched a shirt in Gap, but he's the creative director at Old Navy. Can you just help us understand, you know, how he's working within the various brands within the company? Thanks. Yeah, Robert, thanks for the question.
Matt: Hi.
Robert: Just got a couple of questions for you I think on the first one.
Robert: Are there opportunities for the brands within your portfolio to share information around how products are selling so.
Speaker Change: Somebody could be.
Speaker Change: Blow it out to all divisions like you did with linen and then the second question I have is.
Speaker Change: On the recent gap.
Robert: Dress I think Zac Posen launched a certain GAAP, but he is the creative director at Old Navy can you just help us understand how he's working within the various brands within the company. Thanks, Yeah. Robert Thanks for the question. Yeah. I think this really are both examples of our brand reinvigoration play.
Richard Dickson: Yeah. Robert, thanks for the question.
Richard Dickson: Yeah, I think these really are both examples of our brand reinvigoration playbook. As you've seen us evolve, I mean, we're sort of executing against our brands with renewed strength around their identities and purpose. We've been developing more trend-right product assortments. These product assortments have a clear point of view. And ultimately, through reduced inventory, you can really start to see the merchandising stories in our stores and online.
Speaker Change: Book.
As you've seen us evolve I mean, we sort of executing against our brands with renewed strength around their identities and purpose. We have been developing more trend right product Assortments. These product assortments have a clear point of view.
Speaker Change: And ultimately through reduced inventory you could really start to see the merchandising stories in our stores and online.
Richard Dickson: We are creating better, more engaging omni-channel experiences with clear and compelling pricing strategies. The example of the linen campaign is one that I think is a really good example of the brand reinvigoration playbook coming to life and ultimately, you know, executing with excellence at every touchpoint. And so the drive from an idea through the various different means of consumer communication is showing up in the metrics that ultimately matter.
Speaker Change: We are creating better more engaging omnichannel experiences with clear and compelling pricing strategies.
Speaker Change: The example of the linen campaign ultimately is one that I think is a really good example of the brand reinvigoration playbook coming to life and ultimately executing with excellence at every touch point and so the drive from an idea through the various different means of consumer communication is showing.
Richard Dickson: And we're really feeling very encouraged with the progress that we've been making as it relates to Zach. You know, we've certainly seen Zach's influence start to show up. He's doing great.
Speaker Change: Up in the metrics that ultimately matter and were really feeling very encouraged with the progress that we've been making as it relates to Zack.
Speaker Change: We've certainly seen zacks influence start to show up he's doing great.
Richard Dickson: He's focused on influencing many creative aspects within our company, obviously, most particularly in design and merchandising. But his role is part of our broader strategy to cultivate a culture of creativity. And frankly, that's been missing for some time here at Gap Inc. His work is being publicly recognized, of course, the Gap Met Gala dress that we were so excited to see get such attention. You mentioned the recent Anne Hathaway shirt dress, which is really important work showing how we brought that from a relevant perspective right to revenue as we offered our customers online the ability to go and purchase an inspired dress like that.
Speaker Change: He's focused on influencing many creative aspects within our company, obviously, most particularly in design and merchandising, but his role is part of our broader strategy to cultivate a culture of creativity and frankly, that's been missing for some time here at gap Inc.
Speaker Change: His work is being publicly recognized of course, the GAAP met gala dress that we were so excited to see get such attention you mentioned, the recent and Hathaway shirt dress, which is really important work showing how we brought that from a relevant perspective right to revenue as we offered our customers online.
Speaker Change: And the ability to go and purchase and inspire dress like that.
Richard Dickson: Zach's team produced the Old Navy summering campaign on Old Navy, which is now getting fantastic responses. And even as recently as yesterday, Zach was intimately involved in the launch of our new Banana Republic flagship in Soho, which, by the way, is an amazing portrayal of our brand's future direction. So, you know, all in all, we're continuing to gain momentum, unlocking the creative opportunities that we see across the board and in exciting ways that will continue to unlock these brands and the value that we believe we can give shareholders.
Speaker Change: Zack's team produced the old Navy submarine campaign on old Navy, which is now getting fantastic response.
Speaker Change: And even as recently as yesterday.
Zach was intimately involved in the launch of our new Banana Republic flagship in Soho, which by the way is an amazing portrayal of our brand's future direction. So all in all we are continuing to gain momentum unlocking the creative opportunities that we see across the board and.
Speaker Change: In exciting ways that will continue to unlock these brands and the value that we believe we can give shareholders.
Speaker Change: Okay.
Speaker Change: Thank you.
Operator: Our next question comes from Paul Lejuez with Citigroup. Please go ahead.
Speaker Change: Our next question comes from Paul Lajoie with Citigroup. Please go ahead.
Paul Lawrence Lejuez: Hey, thanks, guys. You saw a really strong merchandise margin improvement. I'm wondering if you could talk about which brands saw improvement in better inventory management. Also, if there's anything that you can share by channel, how stores perform versus ecom on the path of that merchandise margin improvement, and anything that you can share in terms of how we should be thinking about inventory management in the back half of the year.
Speaker Change: Hey, Thanks, guys.
Paul Lawrence Lejuez: You saw really strong merch margin improvement wondering if you could talk about and which brands.
Speaker Change: Admin and better.
Inventory management also.
Speaker Change: There is anything that you can share by channel how stores perform virtually.
Speaker Change: On the path of that merch margin.
Speaker Change: <unk>.
Speaker Change: <unk>.
Speaker Change: Anything that you can share in terms of how we should be thinking about inventory management in the back half of the year. Thanks.
Katrina O'connell: Yeah, I think, Paul, as you said, we saw really good merchandise margin expansion in the quarter. And our rigor, as we just discussed, is showing up in the outlook we just provided. We don't provide margins by brand.
Speaker Change: Yeah I think.
Paul Lawrence Lejuez: Paul as you said, we saw really good merchandise margin expansion in the quarter and our rigor as we just discussed is showing up in the outlook. We just provided we don't provide the margins by brand.
Katrina O'connell: But I think it's fair to say that we will continue to use rigor within all of our brands to make sure that we are delivering against an overall margin expansion goal that we articulated today. And when I think about inventory, you know, as we talked about in the prepared remarks, we've sort of moved beyond the big inventory cleanup that we saw. And now we're back to really having the rigor in the business to ensure that we have stock-to-sales ratios that ensure that our inventory levels continue to be below sales, which gives us the opportunity to continue to chase trends and allow ourselves to be more responsive to our consumers. And so that principle will remain.
Paul Lawrence Lejuez: But I think it's fair to say that we will continue to use the rigor within all of our brands to make sure that we are delivering against an overall margin expansion goal that we articulated today.
Paul Lawrence Lejuez: I think about inventory you know as we talked about in the prepared remarks, we've sort of moved beyond the big inventory cleanup that we saw and now we're back to really having just the rigor in the business to ensure that we have a stock to sales ratios that ensure that our inventory levels.
Paul Lawrence Lejuez: <unk> continued to be below sales, which gives us the opportunity to continue to chase trends and allow ourselves to be more responsive to our consumer and so that principle will remain.
Paul Lawrence Lejuez: Got it. You gave some color on Athleta in the second quarter. How are you thinking about that business as you move past the second quarter? And then, also curious, why the negative spread in the Athleta business in the first quarter?
Speaker Change: Got it and you gave some color on blood in the second quarter. How are you thinking about that business as you move past the second quarter and then also curious why the negative spread in the athletic business in the first quarter.
Richard Dickson: Yeah, well, thanks for asking about Athleta. It's clearly an important brand in our portfolio. We believe it's got significant long-term potential, and we were really proud to deliver a strong quarter. Comps up 5% compared to down 10% in Q4 of 23 is a significant change in direction. During the quarter, we also saw positive signs of Athleta's progress on the strategic initiatives that the team has been driving. So diligently, in particular, core bottoms, which is a key loyalty building category for us, performed particularly well in the quarter.
Speaker Change: Yeah, well, Paul Thanks for asking about Athleta. It it's clearly an important brand in our portfolio. We believe it's got significant long term potential and we were really proud to deliver a strong quarter comps up 5% compared to down 10% in Q4 of 'twenty three is a significant change in.
Speaker Change: Erection during the quarter. We also saw positive signs of athletic progress in the strategic initiatives that the team has been driving so diligently in particular core bottoms, which is a key loyalty building category for us performed particularly well in the quarter. We also saw brand heat coming from our <unk>.
Speaker Change: Limited edition drops, which we started to gain more and more traction with.
Speaker Change: We had great innovation fabric power move.
Speaker Change: Excessively launching new products and train and run and you know we do you expect the promotional volume comparisons to improve by the second half of 'twenty four you've shared that before but Q2 has the toughest comparisons for the brand we are focused diligently executing.
Richard Dickson: We also saw brand heat coming from our limited edition drops, which we started to gain more and more traction with. We are focused, diligently executing against our brand reinvigoration playbook, and ultimately, really starting to see green shoots unfold.
Speaker Change: Against our brand Refigure, reinvigoration playbook, and ultimately really starting to see green shoots.
Speaker Change: Unfold.
Katrina O'connell: And then the negative spread, Paul, that was really just some unique timing related to online sales. So you know, just nothing, nothing.
Speaker Change: And then the negative spread Paul that was really just some unique timing related to online sales. So.
Speaker Change: Just nothing nothing major just unique timing.
Paul Lawrence Lejuez: Online sales are included in the comp there, right?
Speaker Change: Online sales are included in the comp right.
Speaker Change: Correct.
Katrina O'connell: It's really, it's the return.
Speaker Change: It's really it's the rates of return piece.
Paul Lawrence Lejuez: Okay, thanks. Good luck. Our next question comes from Alex Straton with Morgan Stanley. Please go ahead. Perfect. Thanks so much for taking the question. I've got one for Katrina and then one for Richard. So Katrina, you're keeping the audit guidance?
Speaker Change: Got it okay. Thanks, good luck.
Speaker Change: Thank you.
Operator: Our next question comes from Alex Straton with Morgan Stanley. Please go ahead.
Speaker Change: Our next question comes from Alex <unk> with Morgan Stanley. Please go ahead.
Alex: Perfect. Thanks, so much for taking the question I've got one for could turn out and one for Richard So Katrina Youre, keeping the auto guidance sustain maybe how do you think about the opportunity to trim or reduce that line item. Both maybe this year and then into the future and then Richard you've got another three months under your belt, maybe talk to us about what your.
Speaker Change: Focus areas are in <unk> versus the rest of the year and maybe to help us put some metrics around it I think if you have any kpis that you're most focused on that would be helpful to know thanks a lot.
Alexandra Ann Straton: Yeah, I'll start, Alex. So I know that you know, over the last 18 months, we've really worked hard to increase the financial rigor within the organization. And we've achieved roughly $550 million of cost reductions from our high. And so with that, we're pleased with the progress, but we do realize that SG&A is still high. I do believe we can make our cost structure more efficient and drive more operating margin expansion, but we have work to do.
Alex: Yeah, I'll start Alex So I know that you know over the last 18 months, we've really worked hard to increase.
Alex: The financial rigor within the organization and we've actions roughly $550 million of cost reductions from our high and so with that you know well.
Alex: We're pleased with the progress, but we do realize that SG&A is still high.
Alex: I do believe we can make our cost structure more efficient and drive more operating margin expansion, but we have work to do so you know the outlook. We provided today shows that point of view, but we're kind of going to continue to assess the efficiency of our investments and look for opportunities for reduction of redeployment, where it makes sense so more to come.
Alexandra Ann Straton: So you know, the outlook we provided today shows that point of view, but we're going to continue to assess the efficiency of our investments and look for opportunities for reduction or redeployment where it makes sense. So more to come as we move through the year. But we do understand that the $5.1 billion we have work to do. Yeah, and Alex, you know, my priority.
Alex: As we move through the year, but we do understand that the $5 1 billion, we have work to do.
Richard Dickson: Yeah, and Alex, you know, my priorities. We continue to be very consistently represented both in and outside the company. We've laid out our four strategic imperatives, operating and financial rigor, reinvigoration of our brands, evolution of our operating platform, and reviving our culture. My goals, metrics, and measures are all linked to these particular priorities. And in the context of the measurement of these success, or lack thereof, I think the quarter reflects a really strong start on the measures and metrics that matter most.
Speaker Change: Yeah, and Alex you know my priorities.
Speaker Change: Continued to be very consistently portrayed both in and outside the company. We've laid out our four strategic imperatives operating and financial rigor reinvigoration of our brands evolution of our operating platform and reviving our culture my goals metrics and measures are all.
Speaker Change: Linked to these particular priorities and in the context of the measurement of those success or lack thereof, I think the quarter reflects a really strong start to the measures and metrics that matter. Most clearly having all four of our brands comp for the first time in what we can.
Richard Dickson: Clearly, having all four of our brands in competition for the first time, which we can't necessarily find in our history, is a great indication that our reinvigoration playbook and priorities are really taking shape. And I think as we move forward, the fact that we've raised guidance and outlook for the year in the metrics that matter, both top and bottom, is a reflection, if you will, of the success of the execution of our priorities.
Speaker Change: Can't necessarily find in our history is a great indication that our reinvigoration playbook.
Speaker Change: And priorities are really taking shape and I think as we move forward. The fact that we've raised guidance and outlook for the year in the metrics that matter both top and bottom are a reflection. If you will of the success of the execution of our priorities. So with that said you know again, we will keep you updated oh.
Richard Dickson: So with that said, again, we will keep you updated along the way here, focused and frameworked around our priorities but ultimately feeling very confident in where we are, both from a metric perspective as well as from a cultural one.
Speaker Change: Along the way here focused and framework around our priorities, but ultimately feeling very confident in where we are both from a metric perspective as well as a cultural one.
Speaker Change: Great. Good luck guys.
Speaker Change: Thank you.
Operator: Our next question comes from Michael Binetti with Evercore. Please go ahead.
Speaker Change: Our next question comes from Michael Binetti with Evercore. Please go ahead.
Michael Binetti: Hey guys, I had to give my congrats on a great quarter. I guess I'll just play jump ball here.
Speaker Change: Hey, guys I'll add my congrats on a great quarter.
Katrina O'connell: But I mean, we love earnings as much as anyone, but you raise sales, you raise gross margins, you raise even dollars a lot. It sounds like you're getting more comfortable, the investments you're making are headed in the right direction. And there's no reason not to take up SG&A a little bit with the better operations here to invest against the winds. And then I guess similarly, If I think about it a little bit differently, you raised the year on sales by a small amount, but even by a lot, you know, if the results do come in better than the guidance for the rest of the year and we see similar strength, do we see a similar flow through on upside to the top line guidance for the rest of the year? Are there other puts and takes we should consider?
Speaker Change: I guess jump ball here, but I mean, we love earnings as much as anyone but you raised sale. He raised gross margins you raised EBIT dollars a lot. It sounds like you are getting more comfortable with the investments youre, making are headed in the right direction and any reason not to take up the SG&A a little bit with the better operation here to invest against the wind and then I guess.
Speaker Change: Emily.
Emily: If I think about it a little bit definitely raised the year on sales by a small amount, but EBIT by a lot.
Speaker Change: As a result do come in better than the guidance rest of year and we see similar strength do we see a similar flow through on an upside to the top line guidance Rusty here or there or are there other puts and takes we should consider from here.
Michael Binetti: I think, Michael, on the first question, I don't think we see any reason not to invest in wins. I think what you're seeing is the discipline to be looking for both effectiveness and efficiency within SG&A. And so we're doing as much work to optimize what's not working and invest in what is working. And so all of that is showing up in holding the number, but we are certainly looking at opportunities under the cover.
Michael Binetti: I think Michael on the first question I don't think we see any reason not to invest against the wins I think I think what you're seeing is the discipline to be looking for both effectiveness and efficiency within SG&A and so we're doing as much work to optimize what's.
Not working and invest in what is working and so all of that is showing up in holding the number but we are certainly looking at opportunities under the cover and if sales outperformed certainly well, we'll look at that as well.
Michael Binetti:
Michael Binetti: What I would say as far as the guide is, we're very pleased to have had a very good start to the year, and that did result, as you said, in taking up both revenue and, more meaningfully, the operating margin. What I would say is, while we aspire to outperform even further, our outlook right now does reflect the fact that each of our brands is at a very different point in brand reinvigoration. And so, while the first quarter was encouraging, we remain mindful that it's still really early in our work, and we're building consistency. We're also watching consumer and macro trends, but we're confident in our ability to deliver against these commitments, and we'll always look for potential.
Michael Binetti: What I would say as far as the guide we're very pleased to have had a very good start to the year and that did result, as you said and taking up both revenue and more meaningfully the operating margin.
Michael Binetti: What I would say is while we aspire to outperform even further our outlook right now does reflect the fact that each of our brands is in a very different point and brand reinvigoration and so while the first quarter was encouraging where we remain mindful that it's still really early in our work and we're building consistency takes time.
Michael Binetti: We're also watching consumer and macro trends, but we're confident in our ability to deliver against these commitments and we'll always look for potential to do more.
Katrina O'connell: Okay, congratulations again. It's really, really nice to see the progress in the quarter. Our next question comes from Lorraine Hutchinson with Bank of America.
Speaker Change: Okay. Congrats again really really nice to see the progress in the quarter.
Speaker Change: Thank you.
Operator: Our next question comes from Lorraine Hutchinson with Bank of America. Please go ahead. Thank you. Good afternoon. I wanted to follow up on the growth more
Speaker Change: Our next question comes from Lorraine Hutchinson with Bank of America. Please go ahead.
Lorraine Corrine Maikis Hutchinson: Please go ahead. Thank you. Good afternoon. I wanted to follow you.
Lorraine Corrine Maikis Hutchinson: Thank you good afternoon I wanted to follow up on the gross margin point it sounds like Theres still a good second quarter gross margin opportunity from both commodity costs and as you lap some heavy multiyear clearance.
Speaker Change: How are you thinking about merchandise margin drivers in the back half and beyond.
Speaker Change: Well.
Lorraine Corrine Maikis Hutchinson: What I would say, Lorraine, is we just don't want to get too far ahead of ourselves. Right now, if you do the math on the merchandise margin that we just gave for the year, you'll see that we're expecting overall margins related to sort of inventory management to be up slightly. And we're going to really take it one quarter at a time. You know, certainly, if we can outperform, we will.
Speaker Change: What I would say Lorraine is we just don't want to get too far ahead of ourselves right. Now if you do the math on our merchandise margin. We just gave for the year, you'll see that we're expecting for overall margins related to sort of inventory management to be up slightly.
Speaker Change: And and we're going to really take it one quarter at a time, yeah, certainly if if we can outperform we will.
Speaker Change: Thank you.
Operator: Our next question comes from Ike Boruchow with Wells Fargo. Please go ahead.
Speaker Change: Our next question comes from Ike <unk> with Wells Fargo. Please go ahead.
Irwin Bernard Boruchow: Hey, everyone, let me add my congratulations. Um, one for you, Richard, one for you, Katrina, just maybe, Richard, as you've been there in the seat longer, are there any other bigger picture initiatives that you have your eyes on that maybe you haven't really addressed yet? I'm thinking mostly about the store base or maybe around the, you know, additions to the cost structure, but really trying to think about the channel mix of the business.
Speaker Change: Hey, everyone, let me add my congrats.
Speaker Change: One for you Richard walked through Katrina.
Speaker Change: Richard has he been there in the seat longer are there any other bigger picture initiatives you have your eyes on that maybe you haven't really addressed yet I'm thinking mostly around the store base or maybe.
Speaker Change: The additions around the cost structure, but really something that the channel mix of the business and then Katrina I'm curious not looking for guidance or anything as we flow into next year or the first quarter, but can you just give us a high level point of view on deflation I mean, there's been a there's been some chatter about a lot of capacity that's opened up overseas for menu.
Irwin Bernard Boruchow: And then Katrina, curious, not looking for guidance or anything as we flow into next year. I know this is only the first quarter, but can you just give a high-level point of view on deflation? I mean, there's been a lot of chatter about a lot of capacity that's opened up overseas for manufacturing that just kind of lends to the idea that there could be ongoing cost benefits into next year. I'm just kind of curious if you have any initial thoughts on that. Thanks, guys.
Speaker Change: Trying to just kind of lends to the idea that there could be ongoing cost benefits into next year I'm just kind of curious do you have any initial thoughts on that thanks guys.
Richard Dickson: Yeah, thanks, Ike, for the question. Look, I probably sound relentlessly repetitive, but we continue to just operate and execute against our core priorities. Within that, in the context of our performance and arguably bigger initiatives that I am focusing on, clearly, we're not losing focus on any of the mentioned four priorities, but one that I would probably mention in the context of the answer is strengthening our platform. That particular one, I believe, has enormous opportunities for us to gain more efficiency and effectiveness. In some areas, I believe we're in good shape, but ultimately, we have more work to do.
Speaker Change: Yeah. Thanks for the question.
Speaker Change: Look.
Speaker Change: I, probably sound relentlessly repetitive, but we continue to just operate and execute against our core priorities within that in the context of our performance and arguably bigger initiatives that I am.
Speaker Change: Focusing on clearly we're not losing focus on any of the mentioned four priorities, but one that I would probably mentioned it in the context of the answer is the strengthening our platform that particular, one I believe has.
Speaker Change: Enormous opportunities for us to gain more efficiency and effectiveness in some cases I believe we're in good shape, but ultimately we have more work to do our supply chain. For instance is a really terrific scale benefit for us that gives us unique cost leverage, but we need to accelerate innovation.
Richard Dickson: Our supply chain, for instance, is a really terrific scale benefit for us that gives us unique cost leverage, but we need to accelerate innovation. In that respect, I just recently spent almost a week at our Gap Inc supplier summit, an event that we haven't had in many years. I met with our top 100 vendors from around the world, and had the opportunity to see Gap Inc's platform scale really start to show up in the day-to-day and the powerful partnerships that we have around the world in action.
Speaker Change: And in that respect I, just recently spent almost a week with our gap Inc. Supplier summit.
Speaker Change: In event that we haven't had in many years met with our top 100 vendors from around the world and the opportunity to see gap, Inc. Platform scale really start to show up in the day to day and the powerful partnerships that we have around the world in action. The design teams the merchandising teams the marketing teams working alongside.
Richard Dickson: The design teams, the merchandising teams, the marketing teams working alongside best-in-class partners, vendors, mills, and logistics, literally helping us create and produce more than 800 million units a year, but with a renewed cultural connection to innovation and creativity, was really an exciting place to spend some time and recognize the unlocked value. The other one I'd probably mention is media and marketing. I did mention in my opening remarks that we recently announced a new partner that we're engaged with to help up-level our capabilities and drive leverage.
Speaker Change: Best in class partners vendors, Nils logistics, literally helping us create and produce more than 800 million units a year, but within renewed cultural connection on innovation.
Speaker Change: And creativity was really an exciting place to to spend some time and recognize the unlocked value. The other one I'd probably mention is median marketing I.
Speaker Change: I did mentioned in my opening remarks that we recently announced a new partner that we're engaged with to help up level, our capabilities and drive leverage we're going to see a lot more interesting innovative marketing materials as well as creative in addition to recognizing behind the scenes that we've got a lot of leverage.
Richard Dickson: We're going to see a lot more interesting, innovative marketing materials as well as creative in addition to recognizing behind the scenes that we've got a lot of leverage from a media scale perspective to get more efficient. The last one I would talk about in relation to the question is technology. This is an incredible area of opportunity. I certainly have my eyes wide open in this space. We're living in a daily digital dialogue with consumers today.
Speaker Change: From a media scale perspective to get more efficient.
Speaker Change: The last one I would talk about.
Speaker Change: In relation to the question is technology. This is an incredible area of opportunity I certainly have my eyes wide open in the space, we're living in a daily digital dialogue with consumers today. So it's clearly vital that we move quickly to our way of thinking and acting that really use this technology to drive value side.
Richard Dickson: So it's clearly vital that we move quickly to a way of thinking and acting that really uses technology to drive value, solve problems, and ultimately achieve business goals. So we are evaluating and assessing our infrastructure, talent, capabilities, and our ways of working to advance to become a high-performance apparel company. Probably more than you bargained for in terms of an answer, but in the context of your question about what bigger initiatives I have my eye on, I'd say the platform right now is an interesting place to mention.
Speaker Change: Solve problems and ultimately achieve business goals. So we are evaluating and assessing our infrastructure talent capabilities and our ways of working to advance to become a high performing apparel company, probably more than you bargained for in terms of an answer but.
Speaker Change: In the context of your question of what bigger initiatives do I have my eye on I'd say the platform right. Now is is an interesting place dimension.
Katrina O'connell: And I, it's really, honestly, too soon to preview anything around commodity costs for next year, but certainly, if it is deflationary, we'll leverage our scale to get the best cost we can. I would say we remain mindful of the wage inflation impacts that are also out there, so we'll balance those and come up with a view to share when we have it.
Katrina O'connell: And I get really, honestly, too.
Speaker Change: And I it gets really honestly too soon to preview anything around commodity costs for next year, but certainly if it is deflationary, we'll leverage our scale to get the best cost we can.
I would say we remain mindful of the wage inflation impacts that are also out there. So we will balance those in and come up with a view to share when we have it.
Speaker Change: Great. Thanks, guys.
Mike: Thanks, Mike.
Operator: Our next question comes from Brooke Roach with Goldman Sachs. Please go ahead.
Speaker Change: Our next question comes from Brook Route with Goldman Sachs. Please go ahead.
Brooke Siler Roach: Good afternoon, and thank you for taking our question. Richard, can you provide some additional context on the marketing and product initiatives that you have planned within the brand reinvigoration playbook for the Old Navy brand this year that give you confidence in continued comp growth, even as you come up against some of the tougher comparisons in the back half?
Speaker Change: Good afternoon, and thank you for taking our question Richard can you provide some additional context on the marketing and product initiatives that you have planned within the brand reinvigoration playbook for the old Navy brand. This year that give you confidence and continued comp growth even as you come up against some of the tougher comparisons in the back half.
Richard Dickson: Brooke, thanks for the question. You know, when we say marketing today, it's a much more complex function than it was in the past. And our brands need to show up where our consumers are, and we need to do so in relevant ways, which is one of our motivations as we've selected a new agency partner. As I mentioned, this partnership is, in part, another ingredient that is going into our reinvigoration playbook, which is helping our brands communicate a much more relevant, innovative, and modern narrative using a very different media mix than we have in the past and creating really compelling storytelling.
Brook: Brook, Thanks for the question.
Richard: Yeah, when we say marketing today, it's a much more complex function than it was in the past and our brands need to show up where our consumers are and we need to do so in relevant ways, which is one of our motivations as we've selected a new agency partner as I did mention this.
Richard: Partnership is in part a another ingredient that is going into a reinvigoration playbook, which is helping our brands communicate much more relevant innovative and modern narrative.
Richard: Using a very different media mix than we have in the past and creating really compelling storytelling, it's not about spending more it's really about spending more efficiently.
Richard Dickson: It's not about spending more. It's really about spending more efficiently. There are a lot of examples within the brands today that are showing up as proof points around marketing and the reinvigoration playbook. Gap, of course, we've mentioned, is the furthest along, I'd say, with an example of the linen campaign.
Richard: There's a lot of examples within the brands today that are showing up in our proof points around marketing and the reinvigoration playbook GAAP of course, we'd mentioned is.
Richard: Furthest along I'd say with an example on the linen campaign, but as you talk about old Navy old Navy in particular has been delivering consistently yeah. We've had obviously, we're coming off a very strong quarter sales up five comps up three but in the marketing narrative they've become.
Richard Dickson: But as you talk about Old Navy, in particular, has been delivering consistently. Obviously, we're coming off of a very strong quarter, sales up five, and comps up three. But in the marketing narrative, they've become much more effective storytellers. I'd say one of the great examples right now is our current campaign featuring Tracee Ellis Ross and Yara Shahidi. It's a fantastic story, a fun, if you will, on-brand execution. That is an example of how we're marketing and telling our brand differently, but it yet feels very connected to the essence and the roots of Old Navy.
Richard: Much more effective storytellers I'd say one of the great. Examples right now is our current campaign featuring.
Richard: Featuring a tracee Ellis Ross Euro Shahidi, it's a fantastic storytelling fun. If you will on brand execution that is an example of how we're marketing and storytelling our brand differently, but yet feels very connected to the essence and the roots of old Navy.
Richard Dickson: The team is focused on executing with excellence. And you're going to see a lot more interesting, innovative, and surprising initiatives as we roll into the back half, very confident and excited about our work and the work that's coming.
Richard: The team is focused on executing with excellence and you're going to see a lot more interesting innovative and surprising initiatives as we roll into the back half very confident and excited about our work and the work that's coming.
Brooke Siler Roach: And then as a follow-up, the Old Navy brand has rolled out a few different pricing initiatives to simplify the value that you offer the customer, such as Wow Pricing. Can you talk about any early learnings from these tests and how you're thinking about pricing and promotion for the rest of the year at both the Old Navy brand and then across the portfolio?
Speaker Change: Great and then as a follow up the old Navy brand has rolled out a few different pricing initiatives to simplify the value that you offer their customers such as wild pricing can you talk to any early learnings from these tests and how youre thinking about pricing and promo for the rest of the year at both the old Navy brand and then across the portfolio.
Richard Dickson: Yeah, thank you. Another good question. And what I would say is it's not so much about a pricing strategy as it is about pricing communication. We know that compelling pricing and great value are a really important part of the equation at Old Navy and in all of our brands, really. And we love being a highly exciting brand with great value, but we need a balanced promotional strategy. We've been reinforcing value by communicating to customers with much more clarity on price and quality.
Speaker Change: Yeah. Thank you another good question and what are what I would say is it's not so much about our pricing strategy, it's about pricing communication.
Speaker Change: We know that compelling pricing and great value are a really important part of the equation at old Navy and in all of our brands really and we love being a highly exciting brand with great value, but we need a balanced promotional strategy, we've been reinforcing value by communicator.
Speaker Change: To customers with much more clarity on price and quality, we've been doing that in stores and online as you have seen our brands communication strategy evolve most evidently online and in stores are signing package or various different ways that we promote what we call wow prices versus.
Richard Dickson: We've been doing that in stores and online. As you have seen, our brand's communication strategy has evolved most evidently online and in stores. Our signing package, our various different ways that we promote what we call "wow prices" versus percentages off have been much more strategically well thought through with a much more precise communication strategy. And I would encourage you, by the way, to go to our stores or go online. You're going to see a really direct narrative around pricing.
Speaker Change: Percentages off had been much more strategically well thought through with a much more precise communication strategy and I would encourage you by the way to go to our stores go online you're going to see a really direct narrative around pricing, you'll see more wow prices.
Richard Dickson: You'll see more wow prices, both through clear out-of-the-door price messaging and with marketing centered on product. We have a lot more work to do in the context of this strength as a narrative, but I'm really encouraged with the progress that we're seeing. And clearly, the results that we're experiencing on Old Navy, both in sales and brand qualitative metrics, are showing up. And we're very encouraged by the progress.
Speaker Change: Both through clear out the door price messaging and with marketing centered on product.
Speaker Change: We have a lot more work to do in the context of this strength as a narrative, but I'm really encouraged with the progress that we're seeing.
Speaker Change: And clearly the results that we're experiencing I'll note on old Navy both in sales and brand qualitative metrics are showing up and we're very encouraged with the progress.
Brooke Siler Roach: Great. Thanks so much. I'll pass it on.
Speaker Change: Great. Thanks, so much I'll pass it on.
Speaker Change: Thank you.
Operator: Our next question comes from Adrienne Yih with Barclays. Please go ahead.
Speaker Change: Our next question comes from Adrienne <unk> with Barclays. Please go ahead.
Adrienne Eugenia Yih: Great. Let me add my congratulations. Richard, so when we spoke or when we met sort of in December, you talked about sort of, you know, item number one was to have visibility on making and delivering the plan. It's really early in the year, and you've tripled your OI growth.
Speaker Change: Great Let me add my congratulations.
Speaker Change: Richard so or at least okay are willing that started in December you talked about.
Item number one was to have visibility on making and delivering plan. It's really early on in the year and you've tripled your ally growth that's really high conviction.
Richard Dickson: That's really high conviction. But we've heard about the stuff that you're doing company-specific. I'd like to hear about how you are committed to the demand side of it, which is customer feedback and engagement, particularly at Old Navy and Gap.
Speaker Change: But we've heard that the stuff that you're doing company specific I'd like to hear about how you are convicted in the demand side of it which is customer feedback and engagement, particularly at old Navy and gap.
Richard Dickson: Adrienne, thanks for the question. And also, recognizing the progress that we have made, while we can take a very, very, and I've shared that with my team, very quick victory lap, it is a marathon, not a sprint. And in the context of our priorities and the grand reinvigoration playbook, a really big part of that playbook is around insights and recognizing that at the center of what we do, it's all about the customer. And so driving a customer-centric-led organization, insights, trends, research, and hands-on experience. I've also said this is not a business where you can lead from behind a desk.
Adrian: Adrian Thanks for the question.
Speaker Change: And also recognizing that the progress that we have made.
Speaker Change: While we can take a very very and I've shared that with my team very quick victory lap.
Speaker Change: It is it is a marathon not a sprint and in the context of our priorities and the.
Speaker Change: Brand Reinvigoration playbook, a really big part of that playbook is around insights and recognizing that at at the center of what we do it's all about the customer and so driving a customer centric led organization.
Speaker Change: Insights trends research hands on experience.
Speaker Change:
Speaker Change: Also said this is not a this is not a business where you could lead behind a desk.
Richard Dickson: I'm in stores, I'm online; we're sort of pulling our team out of, if you will, the norm and into where the consumers are. Studying the consumer and also then reacting with nimble and agility, you know, aspects as we drive our business to meet their needs. I do think this is an area that we will continue to improve on. There's a lot of work across the business to ensure that we react and respond and meet the consumer where the consumer is and ensure that we excite and delight.
Speaker Change: In stores and online we're sort of pulling our team out of if you will the norm and into where the consumers are studying the consumer and also then reacting.
Speaker Change: With nimble.
Speaker Change: And agility aspects as we drive our business to meet their needs I do think this is an area that we will continue to improve on theres a lot of work across the business to ensure that we react and respond and meet the consumer where the consumer is and ensure that we are exciting.
Speaker Change: I do think as you sort of look at our results that we are in the winning side of that narrative and an industry right now where you know the market did decline as an industry gap, Inc delivered market share growth.
Richard Dickson: I do think, as you sort of look at our results, that we are on the winning side of that narrative. In an industry right now where, you know, the market did decline as an industry, Gap, Inc. delivered market share growth. So we have begun to see across all of our brands, the consumer connecting with our brand reinvigoration playbook, and the efforts that we've made around operating with financial discipline enable more encouragement to invest and continue that process. So lots more to share, lots more to do, but certainly a good milestone moment to note the progress that we've made.
Speaker Change: So we have begun to see across all of our brands the consumer connect to our brand reinvigoration playbook and the efforts that we've made around operating and financial discipline.
Speaker Change: Enable more encouragement to invest and continue that process. So lots more to share lots more to do but certainly a good milestone moment to note the progress that we've made.
Adrienne Eugenia Yih: And then a follow up quickly for Katrina, I know you don't give operating margin performance for each brand, but what might be helpful is that we're clearly seeing the most promotional rigor at Old Navy, right? So I was wondering, can you, for each of the brands, or maybe just for Old Navy and Gap, give us a relative sense of where merchandise margins are relative to the historical average below or at or above?
Speaker Change: And then a follow up quickly for Katrina I know you don't give operating margin performance that each brand, but what might be helpful. Is we're clearly seeing the most promotional rigor at old Navy right.
Katrina O'connell: Thank you.
I was wondering can you for each of the brands or Navy gets for old Navy and gap gave us a relative sense of where merchandize merchandize margins are relative to historical average below or at or above. Thank you.
Katrina O'connell: Yeah, Adrienne, you know, we don't actually disclose margins by brand. So what I would say is, if you do the math around the full year outlook on gross margin that we just gave, you'll see that it implies a return to a really historical high gross margin for the company. If you go back many, many years, the implied margin really is historically high.
Speaker Change: Yeah Adrian.
Speaker Change: You know, we don't actually disclose margins by brand. So what I would say is if you do the math around the full year outlook on gross margin that we just gave them you'll see that it implies a return to really a historical high gross margin for the company. If you go back many many year.
Speaker Change: Here's the implied margin really is historically high again, that's because of the rigor we're applying across all of our brands related to inventory related to ensuring that we're being prudent around recapturing commodities.
Katrina O'connell: Again, that's because of the rigor we're applying across all of our brands related to inventory, related to ensuring that we're being prudent around recapturing commodities. And really, as Richard said, thinking about the health of our brands through the customer's eyes, and ensuring that we have the right brand reinvigoration to ensure that we can sell product at higher AURs. Our AURs overall for the company are actually higher than pre-pandemic levels, and so all of that's contributing to overall gross margins that are historically high.
Speaker Change: And really as Richard said thinking about the health of our brands through the customer's eyes and ensuring that we have the right brand reinvigoration to ensure that we can sell product at higher AUR as our AUR is overall for the company are actually higher than pre pandemic levels and so all of that is contributing to <unk>.
Speaker Change: Overall gross margins that are historically high.
Adrienne Eugenia Yih: Fantastic. Thank you. Best of luck. Thanks, Adrienne. Our last question comes from Jonah Kim with TD Cowan. Please go ahead. Hi, thank you for taking my question. Just curious as you are.
Speaker Change: Fantastic. Thank you best of luck thanks Adrian.
Operator: Our last question comes from Jonah Kim with TD Cowan. Please go ahead. Hi, thank you for taking my question. I'm just curious, as you are.
Our last question comes from Jon Atkin with TD Cowen. Please go ahead.
Jon Atkin: Alright. Thank you for taking my question just curious as you.
Speaker Change: Have new collaborations and more cultural resonance with consumer are you seeing higher customer acquisition that gap and what is your strategy to retain the customer and another question is any change in the strategy at the outlets at <unk>.
Speaker Change: Continue to look at all brands.
Speaker Change: That'd be helpful. Thank you.
Jungwon Kim: Thanks, Jonah. I think what I could share with you, in particular Gap. I've talked about Gap as a pop culture brand, and we've been showing up in the cultural conversation. Our Met Gala dress, worn by Dave Ein, got incredible attention, as did our shirt dress by Anne Hathaway. We've had, you know, a history of collaborations, most recently with Doan, that have driven both relevance and revenue. It is a part of our playbook.
Joanna: Thanks, Joanna I think what I can share with you in particular gap.
Yeah, I've talked about GAAP as a pop culture brand and we've been showing up in the cultural conversation are met gala dress effectively.
Joanna: Worn by Divine got incredible attention as did our shirt dress by Anne Hathaway, We've had a history of collaborations most recently with Doe in that has driven.
Joanna: Given both relevance and revenue it is a part of our playbook.
Jungwon Kim: It is a part and a methodology around unlocking the value of our brands through relevance and ultimately driving revenue. And so successful brand reinvigoration is when you have both. In some cases, if you just have relevance without revenue, it's not really a successful reinvigoration.
Joanna: As a part and a methodology around unlocking the value of our brands through relevance and ultimately driving revenue and so successful brand reinvigoration as when you have both in some cases, if you just have relevance without revenue its not really a successful reinvigoration and I think what you're seeing.
Richard Dickson: And I think what you're seeing unfold is ultimately the combination of the two, most displayed at this juncture with our Gap brand, but you can take a look at Athleta as well. You know, Athleta had an incredibly strong performance, and while we're really encouraged with the progress that we're making, we do have work to do, Athleta is also becoming part of the cultural conversation. This year, we've seen a major step up for women's sports and female athletes.
Joanna: Unfold is ultimately the combination of the two.
Joanna: Most displayed at this juncture with our with our with our gap brand, but you can take a look at athleta as well as letter had an incredibly strong performance and while we're really encouraged with the progress that we're making we do have work to do Athleta is also becoming part of the cultural conversation. This year, we've seen a major step up for women's sport.
Richard Dickson: They're really starting to get recognized for the attention and the credit that they've long deserved. And Athleta has developed the Power of She Collective, which is comprised of legendary athletes. We've got Simone Biles. We've got Katie Ledecky.
Joanna: Female athletes globally are really starting to get recognized for the attention and the credit that they've long deserved and Athleta has developed the power of she collected which is comprised of legendary athletes. We've got some own biles. We've got Katie Matecki is serving as game changing brand ambassador.
Richard Dickson: They're serving as game-changing brand ambassadors who are ultimately united in our mission to empower women and girls. These are great examples of our brand playbook. These are great examples of being part of the cultural conversation and ultimately what we believe will drive relevance and revenue. In relation to the second part of your question, there are no changes in strategy narratives at this time around our outlet or omni-channel businesses. What we're very focused on is the prioritization map that we've shared and ultimately executing that with excellence.
Joanna: <unk>, who are ultimately United in our mission to empower women and girls. These are great. Examples of our brand playbook. These are great examples being part of the cultural conversation and ultimately what we believe will drive relevance and revenue.
Joanna: In relation to the second part of your question. There. There are no change in strategy narratives that this time around or outlet or or Omnichannel businesses. What we're very focused on is our prioritization.
Joanna: Map that we've shared and ultimately executing that with excellence.
Speaker Change: Operator. Thank you we've reached the end of the question and answer session that does conclude our conference call you may now disconnect.
Operator: Thank you. We've reached the end of the question and answer session. That does conclude our conference call. You may now disconnect.