The activewear retail sector has been struggling lately due to economic uncertainty and consumers' desire to sport the latest trends that provide both functionality and style. Even the most renowned and successful brands have been through tough financial times, with Nike's (NKE) revenues declining 10%, Under Armour (UAA) decreasing 11%, and Puma's down 0.1%
The Gap Inc. (GAP) is an American retailer that owns multiple apparel brands, including its namesake brand Gap, Old Navy, Banana Republic, and Athleta.
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Acquired by Gap in 2008, Athleta is the company's newest and only activewear-focused brand. This brand doesn't follow the same formula as the rest of its banners, which might be why the company struggled to understand how to operate it successfully in the past couple of years.
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However, a recent addition to the company's executive team came to the rescue and applied his prior experience to implement new strategies, completely turning the brand upside down at record speed.
This quick success might be a win for Gap, but it also poses a huge threat to its strong competitors.
Athleta goes from being the weakest link to becoming Gap's strongest brand
According to Gap's third-quarter earnings report of 2024, net sales increased 2% to $3.83 billion compared to last year, outdoing analysts' expected $3.81 billion.
The company reported earnings per share of $0.72, exceeding analysts expected $0.58.
Although Athleta has the fewest stores of all Gap's banners, with 270 in North America, the brand has managed to have a quick positive turnaround, reporting the most growth.
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Athleta's sales increased by 4% to $290 million, with comparable sales up 5%, compared to the same time last year when it reported a 19% decline.
The company attributes this successful quarter to its new product and marketing, which better resonates with customers, and celebrity partnerships that allow it to stay relevant. In July of last year, Gap appointed Chris Blakeslee, Alo Yoga's former President, as Athleta's new President and CEO, and since then, the brand has been on an upward track.
“We’ve got stronger brand identities and we’re more practiced in our playbook that we talk a lot about, driving better product, better pricing, more relevance, better consumer experience and excellence in execution,” said Gap CEO Richard Dickson in the earnings call.
Athleta's new CEO takes the strategies from its former company to create another successful brand
Alo Yoga is an LA-based athletic apparel brand founded in 2007 that markets itself as a mix of luxury and performance. It's known for being celebrities' favorite brand, which has attracted mainly higher-value customers.
The brand has grown rapidly due to its savvy social media strategies, which keep it relevant, and Alo's former CEO seems also to be implementing this tactic with Athleta.
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Since the debut of its account on TikTok in February, Athleta has become one of the social media platform's largest-growing sportswear retailers. This might be due to its increase in celebrity and influencer partnerships, which Alo Yoga is also well-known for doing and has taken to its advantage to propel its growth.
Athleta's outstanding performance contributed to Gap's stock after the announcement of its quarterly earnings, as its shares rose over 15%.
"Athleta's return to growth was driven by strong marketing activations, a broader customer base, product newness, and improved customer experience," said Bank of America analyst Lorraine Hutchinson.
Due to Athleta's rapid growth, the brand is becoming a strong player in the activewear sector. This poses a huge threat to its longer-established competitors, who might soon lose their titles if they fail to keep up with emerging brands.
Gap confidently raises its outlook for 2024 and its upcoming quarter
After publishing its third-quarter earnings, Gap expressed optimism about the company's future, thanks to Athleta's outstanding growth. It provided a revised outlook for the full fiscal year 2024, confidently raising its sales, gross margin, and operating income growth.
The company now expects full-year net sales to increase by 1.5 to 2% on a 52-week basis, a slight increase from its previous guidance. The fourth quarter of 2024 is predicted to grow by 1% to 2%.
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