Gap needs 'stability' for long-term growth: Analyst
Gap Inc. (GPS) reported a fourth quarter earnings beat, even as the company undergoes a reinvigoration plan. TD Cowen Analyst Jonna Kim joined Yahoo Finance Live to discuss her outlook on the retailer.
While acknowledging that Gap is "on the path to improvement," Kim expresses the need for "stability" within the company. However, she commends the "very solid" margin improvement across the company's portfolio of stores. She also notes improvements in the Banana Republic and Athleta brands are essential for her to gain "more confidence in the stock."
Kim suggests that "creative marketing" strategies like the utilization of social media as a "key driver" for long-term growth. She stresses attracting "the younger consumer" is pivotal for apparel retailers, and with Gap being an older brand, she believes partnerships would help engage that younger demographic.
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Editor's note: This article was written by Angel Smith
Video Transcript
BRAD SMITH: Retailer GAP delivering profits in its holiday quarter that topped expectations. CEO Richard Dickson telling "Yahoo Finance" that the company is seeing early signs of a reinvigorated business. Shares are higher by a little more than 4% here.
Here to discuss the progress in GAP's turnaround efforts, we have TD Cowen analyst Jonna Kim. Great to have you here with us today.
First and foremost, you think about the quarter, you're listening to the call last night, what is your takeaway about where this company has and it is in that reinvigoration broader plan?
JONNA KIM: Yeah, certainly. Thanks for having me today. Certainly, the company's on a path of improvement. Old Navy copying 2%, GAP copying 4%, I think, is a very good sign. The thing that we are looking for is stability in the business and longevity of growth trends.
Certainly, Banana Republic and Athleta are still undergoing some changes. And the recovery is expected to happen more longer term. So I think those are the signs that we are looking for. But the margin improvement was very solid. Gross margin was up 530 basis points for the year. It was up 380 basis points. So all those improvements are quite impressive.
But are looking for signs of stability and just sustainable growth ahead.
SEANA SMITH: What's going to drive that, Jonna?
JONNA KIM: I think it's really a combination of having very creative marketing and on trend products across all brands. Old Navy is having, I think, a little bit of a refreshment with Zac Posen as a creative director. In a GAP brand, They're trying to find that cultural relevance through TikTok and social media. So all of those combined, and I think the management teams really vision is changing.
So those are going to be the key driver for sustainable top line. But, obviously, specialty retail apparel is quite difficult to get the trend right. So it's a little bit difficult for us to recommend at this time. But certainly, I think if Athleta and Banana Republic, if we are seeing solid signs there, we'll get more confident in the stock.
BRAD SMITH: It's really interesting that you mentioned those two words in cultural relevance for a company in GAP. And I know that this year, they've got one of their biggest planned DAP-GAP collaborations that's set to come.
What do collaborations like that do in moving the needle in this reinvigoration plan and securing market share as well?
JONNA KIM: I think, one of the most important things now in apparel market is getting the younger consumer as well. GAP is an old brand. But they lost relevance with younger consumers. So I think having those collaboration and being more viral on social media certainly helps.
Having just the right trend products without overbuying on the inventory is also important for margin improvement. So all of those combined. I think, is in top of mind for management team. But just the execution is what we are really looking for.
