The sportswear retail sector has been struggling lately due to economic uncertainty and consumers' desire to show off the latest trends that provide functionality and style. Even the most recognizable and successful brands have fallen on tough financial times, with Nike (OF) Revenue falls 10%, Under Armor (AUA) decreasing by 11%, and that of Puma by 0.1%
The Gap Inc. (GAP) is an American retailer that owns several clothing 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 brand focused on activewear. This brand does not follow the same formula as the rest of its brands, which could be the reason why the company had a difficult time understanding how to operate it successfully in recent years.
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However, a recent addition to the company's executive team came to the rescue and applied his previous experience to implement new strategies, completely revolutionizing the brand at record speed.
This rapid success could be a victory 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 For 2024, net sales rose 2% to $3.83 billion compared to last year, beating the $3.81 billion expected by analysts.
The company reported earnings per share of $0.72, beating the $0.58 expected by analysts.
Although Athleta has the fewest stores of all Gap brands, with 270 in North America, the brand has managed to make a rapid positive turnaround, reporting the most growth.
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Athleta's sales rose 4% to $290 million, with comparable sales up 5%, compared to the same period last year, when it reported a 19% decline.
The company attributes this successful quarter to its new product and marketing, which resonates better with customers, and celebrity partnerships that allow it to remain relevant. In July of last year, Gap named Chris Blakeslee, former president of Alo Yoga, as Athleta's new president and CEO, and the brand has been on an upward path ever since.
“We have stronger brand identities and we have more practice in our playbook that we talk a lot about, driving better products, better prices, more relevance, better consumer experience and excellence in execution,” Gap CEO Richard Dickson said. in it earnings call.
Athleta's new CEO takes his former company's strategies to create another successful brand
Alo Yoga is a Los Angeles-based sportswear brand founded in 2007 that markets itself as a combination of luxury and performance. It is known for being a celebrity favorite brand, which has mainly attracted higher-net-worth customers.
The brand has grown rapidly due to its clever social media strategies, which keep it relevant, and the former CEO of Alo also appears to be implementing this tactic with Athleta.
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Since debuting its TikTok account in February, Athleta has become one of the fastest-growing activewear retailers on the social media platform. This could be due to its increase in partnerships with celebrities and influencers, which Alo Yoga is also known for and has leveraged its advantage to fuel its growth.
Athleta's strong performance helped Gap stock following its quarterly earnings announcement, as its shares rose more than 15%.
“Athleta's return to growth was driven by strong marketing activations, a broader customer base, product news and an 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 sportswear sector. This poses a huge threat to its more established competitors, who could soon lose their titles if they fail to keep up with emerging brands.
Gap confidently raises its outlook for 2024 and its next quarter
After releasing its third-quarter results, Gap was optimistic about the company's future, thanks to Athleta's outstanding growth. It provided a revised outlook for the full fiscal year 2024, confidently increasing its sales, gross margin and operating income growth.
The company now expects full-year net sales to increase between 1.5 and 2% over the 52-week period, a slight increase from its previous guidance. The fourth quarter of 2024 is expected to grow between 1% and 2%.
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