Gap CEO Insists the Company Is Neither Sick Nor Dying

February 24, 2017, 4:54 PM UTC
Old Navy is Gap Inc.'s largest brand, followed by Gap and Banana Republic.
Photograph by Bloomberg via Getty Images

Gap Inc (GPS) has plenty of fight left in it, the retailer’s CEO told Wall Street analysts this week, backed by one of its best quarters in a long time.

The company reported a quarterly comparable sales increase of 2%Z—the first period of sales growth since CEO Art Peck took the reins two years ago—raising hopes the owner of the Gap, Banana Republic and Old Navy brands was finally turning the corner.

Peck said the promising sales trend were the result of improvements to quality fit and look of its products, and more nimbleness in its supply chain that has allowed it to jump on trends more quickly, something fast-fashion rivals like H&M and Zara have been better at. (Peck said roughly one-third of Gap Inc’s merchandise can now be manufactured within a quarter, rather than the 9 months it used to take many apparel makers.) Other moves, in the works for more than year and now paying off, are Gap Inc’s streamlined inventory management systems and having more fabric on hand to more quickly produce clothes.

“If you read the headlines today, you’ll see the words dead, dying, sick. We are none of those,” Peck told analysts on a conference call Thursday.

The company expects comparable sales to be unchanged or up slightly this fiscal year, hardly a major return to form. So skeptics can be forgiven.

By his own admission, Gap Inc’s improvements have been slow in coming. “We probably all underestimated the magnitude and speed of the changes taking place,” Peck added. Fast fashion chains as well as off price stores like T.J. Maxx and Ross Dress for Less, not to mention (AMZN), have been aggressively taking market share from department stores as well as specialty apparel chains.

Indeed, Peck recognized the apparel market was in “significant disruption” but growing, something he said gives Gap Inc the chance to grab market share, thanks to its large scale and clout with vendors. He hinted at some recent bankruptcies in the apparel sector as freeing up some market share. He didn’t name names, but those include American Apparel, Wet Seal, and Aéropostale.

Since he took the reins, Gap Inc has closed hundreds of stores and grappled with changes in the leadership at its three major brands, including most recently the departure of the head of Banana Republic, the company’s most troubled brand.

The company’s largest brand Old Navy faced turmoil after former leader Stefan Larsson’s exit for Ralph Lauren in 2015, but is back on track in a big way, even as Peck characterized progress in fixing the Gap brand as “slower than I expected.” As for Banana Republic, Peck is looking for a new leader, though some on Wall Street are starting to see the brand as a lost cause: Jefferies analyst Randal Konik said in a note that the company “should consider strategic alternatives (potential sale, massively reduce footprint, shut down)” for the brand.

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Great ResignationInflationSupply ChainsLeadership