Gap Co., Ltd. CEO Richard Dixon said Athleta’s turnaround is taking longer than expected, but the company remains committed to rebuilding the struggling activewear brand.
“Athleta is an important brand in our portfolio,” Dixon told CNBC’s “Mad Money” on Friday. “We are in a rebuilding year.”
On Thursday, Gap reported weaker-than-expected results from Athleta, with first-quarter sales down 12% to $270 million and comparable sales down 11%. In the company’s earnings call, management described Athleta as a “slow turnaround” and warned that second-quarter trends are expected to remain similar to the first quarter. Athleta’s comp sales also reflected its challenges, falling 10% and 11% in the fourth and third quarters of last year.
Athleta’s woes aren’t the only problem facing Gap right now.
The company’s stock fell 17% on Friday as weakness at Old Navy, Gap’s largest grossing brand, overshadowed the strength of the rest of the portfolio. Old Navy’s sales grew 1% in the quarter, below analysts’ expectations of 3%. Gap lowered its full-year sales forecast as weak demand for seasonal categories such as dresses weighed on performance.
Still, Dixon said Gap sees a path to recovery for Athleta under the brand’s CEO Maggie Gauger, who joined the company last August and has led a review of the business. During the pandemic, Athleta has been a vibrant growth engine for Gap, which also owns Old Navy and its namesake brand.
“She has significantly streamlined the assortment, resulting in improved (average retail unit) margins despite a tight top line,” Dixon said.
Gap also restructured its leadership, improved creative execution and began rolling out new products that management believes will resonate with shoppers.
“We’ve got some new items, and they’re checking out really well,” Dixon said. “Although it is small and in its infancy, we believe this brand has the power to deliver.”
Dixon said Athleta, the No. 5 activewear brand in the category, remains a significant long-term growth opportunity for Gap.
“The onus is on us to prove that,” Dixon said, adding that the company expects “some improvement” in the second half of this year.
“We continue to chip away at this and believe we can find a growth pattern for Athleta,” he said.
