May 30, 2025 • 8 mins
Gap is predicting a tariff impact of as much as $300 million, and revealed stubborn weakness at two of its smaller brands, Banana Republic and Athleta. The company's CEO Richard Dickson spoke on the company's weak quarter with Bloomberg's Matt Miller and Katie Griefeld
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Speaker 1 (00:00):
Let's get back to one of the big corporate stories
of today, and that is shares of Gap plunging this
morning after the retailer predicted its terriff impact could be
as much as three hundred million dollars. Let's get right
now to the CEO of Gap. His name is Richard Dickson,
and Richard, it's great to have you with us. Normally
I would ask about the results themselves, but I have
to start with the share price down nineteen point eight
(00:22):
percent at the moment. Matt and I were talking about
earlier how CEOs often come on this program and tell
us that they don't watch the day to day movements,
But I feel like this move is hard to miss. Richard,
So what do you do with this? What does the
rest of your day look like? Are you having all
hands meetings, are you in conversations with your board? What
does it look like?
Speaker 2 (00:41):
Well? I think it's true. I mean we don't manage
our day to day business focused on our daily stock movement. Clearly,
it's a dynamic market out there, but much more importantly
is that our brand reinvigoration is working and it's showed
up in our results. We delivered another great quarter a
consistently great quartered expectations across all key financial metrics. Our
(01:03):
strategic priorities are clear, and despite a dynamic environment, we're
staying firmly on course and it's showing up in the results.
Comps were up two percent. That's the fifth consecutive quarter
of positive comps. It's also the ninth consecutive quarter that
we gain market share, which indicates our product is resonating.
(01:23):
We expanded both gross margin and operating margin during the quarter.
We controlled expenses, We increased our EPs by twenty four percent.
We strengthened our balance sheet. We have a strong cash
flow balance, and we've got two point two billion dollars.
The queue is really another proof point that the strategy
is working. I remain incredibly optimistic yet realistic about the
(01:46):
opportunities ahead, and we're all navigating a highly dynamic environment.
Speaker 3 (01:50):
I have to say, though, that you know you've lost.
Your company has lost fully one fifth of its value today,
so we're worth over ten billion dollars in market cap
and now it's eight. That's the kind of thing that
you just can't look away from. And it looks like
that's all down to the tariff impact headline, which you
(02:12):
said as much as three hundred million dollars. That's less
than one percent of your operating income. I mean, you
have fifteen billion dollars in sales, so it's a seemingly
small number. Don't you need Richard to analyze why the
market is attributing so much to this relatively small number.
Speaker 2 (02:36):
Look, of course, we're on top of and studying obviously
the marketplace and the reaction. But we are running a
business for the long term, and like any business, we're
constantly navigating complexities. In this case, it's tariffs, but it's
our responsibility to do so without compromising the long term
integrity of our strategy, and most important to the extent
(03:00):
of that strategy is our consumer value proposition, which is
resonating now in relation to the tariff conversation. We did
share that we've already mitigated over half of the anticipated
impact teriff. We've done it through very thoughtful adjustments to
sourcing and manufacturing and our assortments. We also shared that
(03:20):
we remain committed to achieving the remaining net impact of
about one hundred to one hundred and fifty million, primarily
also weighted to the back half that we've been diversifying
our sourcing footprint for several years. China, as an example,
used to be a top sourcing country for US, and
now we also share that we expected to be less
than three percent by year end, so at the end
(03:42):
of twenty twenty six, we're also planning for no country
to account for more than twenty five percent. So our
goal first and foremost with our investors is transparency, and
we were very purposeful in separating the outlook from the
estimated tariff impact, and we believe that the outlook is
providing a perspective on the underlying health of our business,
which is working as evidence by our performance as well,
(04:06):
we share the estimate of the impact of the tariffs,
which could still change as a couple of days ago
is also changing. July ninth is also another milestone moment
with yet another update on tariff. So the estimated tariff
provided that we shared was primarily weighted to the back
half and we'll continue to update as we move along.
(04:27):
But we're very focused on executing our playbook. It is
showing up our two biggest brands, Gap and Old Navy,
are winning in the marketplace. We're building stronger identities, we're
driving new customers to our site, and we're very excited
about obviously the back half of twenty twenty five.
Speaker 1 (04:43):
Well, Richard, it's a fair point that the tariff landscape,
it changes day to day, hour to hour in some cases,
so we'll keep a close eye on that. Let's talk
a little bit more about your portfolio. You mentioned Old Navy,
you mentioned Gap doing very well and performing strongly in
this market. But talk to us little bit more about Athleta,
about Banana Republic, which haven't seen that same momentum. How
(05:05):
do you specifically plan to revitalize those brands well.
Speaker 2 (05:09):
As you mentioned first, let's start with Old Navy, because
Old Navy is our largest brand in the portfolio and
it continues to deliver. This is the ninth consecutive quarter
of market share gains. Comps were up three percent. We're
winning in the categories that we've intended to drive, active
and denim. We've been pursuing a leadership position, and the
market share continues to gain quarter after quarter. We also
(05:34):
just introduced Old Navy New Moves, a new campaign that
really solidifies and supports our activewear strategy. It is a
clear example of how we're accelerating Old Navy's adoption of
our playbook. We take big ideas and big product categories,
we amplify them with great storytelling, and then we connect
them to the consumer. Denham was another standout category share
(05:57):
gains across that category with a fourth just adult denim
brand in the US, and these are real elements that
we can count on that are giving us the confidence
that ultimately we're going to deliver in twenty twenty five.
Gap is another brand that's gaining momentum. We're incredibly proud
of the progress that we're making with Gap. Comps up
five percent, eight consecutive quarters of market share gains, Incredible
(06:21):
performance based on innovation, product newness, compelling marketing collaborations that
are driving a whole new generation to GAP. Recent campaign
with Parker Posey, which resonated with consumers a great example
again of our playbook, and the strength of that brand
is going to continue, and we believe Gap is well
positioned to continue to momentum. Banana Republic is a brand
(06:45):
that we've been re establishing. Fundamentals are improving. We were
flat for the quarter. We're seeing trends continue in men's
which we're very proud of, and the team has done
a great job strategically deploying more marketing to culturally relevant
storytelling are women's bi This has started to take traction.
The collaboration with White Lotus was incredible and we believe
that that brand quarter after quarter is starting to see
(07:07):
great progress. And lastly, just to finish up our portfolio,
Athleta is an incredible valuable place in our portfolio and
in the industry. By the way, we've been resetting that
brand to more effectively compete in the marketplace. We did
share that we expected to be a bit choppy as
we continue to fix the fundamentals. We provided that outlook
yesterday in our in our call, but Athleta needs to
(07:30):
become a much more exciting brand for our consumer. We
had an over rotation that we discussed last quarter towards
new consumers, which we did attract, but we still didn't
have enough compelling product to appeal to our large consumer
base and it's showed in the performance. So we're investing
in design talent, we're driving newness into the brand, and
we have more work to do, but we're committed to
(07:51):
really taking the necessary steps to reset that brand.
Speaker 3 (07:54):
Richard, you seem to have a particular affection for Banana Republic.
You're personally running that brand. Are you any closer though,
to finding someone else to do some of that work
for you?
Speaker 2 (08:07):
We've met some extraordinary talent. We are very close to
what we believe will be the right pick at the
right time, and as you see, we're continue to we're
continuing to strengthen the brand. So as much as obviously
we're sort of looking for the right person, we take
these positions very seriously and we want to make sure
that we have the right talent that can take that
(08:27):
brand and drive it to the next level.
Speaker 3 (08:29):
All right, Richard, thanks so much for your time. Really
appreciated GAP CEO Richard Dixon talking to us about his results.
Let's get back to one of the big corporate stories
of today, and that is shares of Gap plunging this
morning after the retailer predicted its terriff impact could be
as much as three hundred million dollars. Let's get right
now to the CEO of Gap. His name is Richard Dickson,
and Richard, it's great to have you with us. Normally
I would ask about the results themselves, but I have
to start with the share price down nineteen point eight
(00:22):
percent at the moment. Matt and I were talking about
earlier how CEOs often come on this program and tell
us that they don't watch the day to day movements,
But I feel like this move is hard to miss. Richard,
So what do you do with this? What does the
rest of your day look like? Are you having all
hands meetings, are you in conversations with your board? What
does it look like?
Speaker 2 (00:41):
Well? I think it's true. I mean we don't manage
our day to day business focused on our daily stock movement. Clearly,
it's a dynamic market out there, but much more importantly
is that our brand reinvigoration is working and it's showed
up in our results. We delivered another great quarter a
consistently great quartered expectations across all key financial metrics. Our
(01:03):
strategic priorities are clear, and despite a dynamic environment, we're
staying firmly on course and it's showing up in the results.
Comps were up two percent. That's the fifth consecutive quarter
of positive comps. It's also the ninth consecutive quarter that
we gain market share, which indicates our product is resonating.
(01:23):
We expanded both gross margin and operating margin during the quarter.
We controlled expenses, We increased our EPs by twenty four percent.
We strengthened our balance sheet. We have a strong cash
flow balance, and we've got two point two billion dollars.
The queue is really another proof point that the strategy
is working. I remain incredibly optimistic yet realistic about the
(01:46):
opportunities ahead, and we're all navigating a highly dynamic environment.
Speaker 3 (01:50):
I have to say, though, that you know you've lost.
Your company has lost fully one fifth of its value today,
so we're worth over ten billion dollars in market cap
and now it's eight. That's the kind of thing that
you just can't look away from. And it looks like
that's all down to the tariff impact headline, which you
(02:12):
said as much as three hundred million dollars. That's less
than one percent of your operating income. I mean, you
have fifteen billion dollars in sales, so it's a seemingly
small number. Don't you need Richard to analyze why the
market is attributing so much to this relatively small number.
Speaker 2 (02:36):
Look, of course, we're on top of and studying obviously
the marketplace and the reaction. But we are running a
business for the long term, and like any business, we're
constantly navigating complexities. In this case, it's tariffs, but it's
our responsibility to do so without compromising the long term
integrity of our strategy, and most important to the extent
(03:00):
of that strategy is our consumer value proposition, which is
resonating now in relation to the tariff conversation. We did
share that we've already mitigated over half of the anticipated
impact teriff. We've done it through very thoughtful adjustments to
sourcing and manufacturing and our assortments. We also shared that
(03:20):
we remain committed to achieving the remaining net impact of
about one hundred to one hundred and fifty million, primarily
also weighted to the back half that we've been diversifying
our sourcing footprint for several years. China, as an example,
used to be a top sourcing country for US, and
now we also share that we expected to be less
than three percent by year end, so at the end
(03:42):
of twenty twenty six, we're also planning for no country
to account for more than twenty five percent. So our
goal first and foremost with our investors is transparency, and
we were very purposeful in separating the outlook from the
estimated tariff impact, and we believe that the outlook is
providing a perspective on the underlying health of our business,
which is working as evidence by our performance as well,
(04:06):
we share the estimate of the impact of the tariffs,
which could still change as a couple of days ago
is also changing. July ninth is also another milestone moment
with yet another update on tariff. So the estimated tariff
provided that we shared was primarily weighted to the back
half and we'll continue to update as we move along.
(04:27):
But we're very focused on executing our playbook. It is
showing up our two biggest brands, Gap and Old Navy,
are winning in the marketplace. We're building stronger identities, we're
driving new customers to our site, and we're very excited
about obviously the back half of twenty twenty five.
Speaker 1 (04:43):
Well, Richard, it's a fair point that the tariff landscape,
it changes day to day, hour to hour in some cases,
so we'll keep a close eye on that. Let's talk
a little bit more about your portfolio. You mentioned Old Navy,
you mentioned Gap doing very well and performing strongly in
this market. But talk to us little bit more about Athleta,
about Banana Republic, which haven't seen that same momentum. How
(05:05):
do you specifically plan to revitalize those brands well.
Speaker 2 (05:09):
As you mentioned first, let's start with Old Navy, because
Old Navy is our largest brand in the portfolio and
it continues to deliver. This is the ninth consecutive quarter
of market share gains. Comps were up three percent. We're
winning in the categories that we've intended to drive, active
and denim. We've been pursuing a leadership position, and the
market share continues to gain quarter after quarter. We also
(05:34):
just introduced Old Navy New Moves, a new campaign that
really solidifies and supports our activewear strategy. It is a
clear example of how we're accelerating Old Navy's adoption of
our playbook. We take big ideas and big product categories,
we amplify them with great storytelling, and then we connect
them to the consumer. Denham was another standout category share
(05:57):
gains across that category with a fourth just adult denim
brand in the US, and these are real elements that
we can count on that are giving us the confidence
that ultimately we're going to deliver in twenty twenty five.
Gap is another brand that's gaining momentum. We're incredibly proud
of the progress that we're making with Gap. Comps up
five percent, eight consecutive quarters of market share gains, Incredible
(06:21):
performance based on innovation, product newness, compelling marketing collaborations that
are driving a whole new generation to GAP. Recent campaign
with Parker Posey, which resonated with consumers a great example
again of our playbook, and the strength of that brand
is going to continue, and we believe Gap is well
positioned to continue to momentum. Banana Republic is a brand
(06:45):
that we've been re establishing. Fundamentals are improving. We were
flat for the quarter. We're seeing trends continue in men's
which we're very proud of, and the team has done
a great job strategically deploying more marketing to culturally relevant
storytelling are women's bi This has started to take traction.
The collaboration with White Lotus was incredible and we believe
that that brand quarter after quarter is starting to see
(07:07):
great progress. And lastly, just to finish up our portfolio,
Athleta is an incredible valuable place in our portfolio and
in the industry. By the way, we've been resetting that
brand to more effectively compete in the marketplace. We did
share that we expected to be a bit choppy as
we continue to fix the fundamentals. We provided that outlook
yesterday in our in our call, but Athleta needs to
(07:30):
become a much more exciting brand for our consumer. We
had an over rotation that we discussed last quarter towards
new consumers, which we did attract, but we still didn't
have enough compelling product to appeal to our large consumer
base and it's showed in the performance. So we're investing
in design talent, we're driving newness into the brand, and
we have more work to do, but we're committed to
(07:51):
really taking the necessary steps to reset that brand.
Speaker 3 (07:54):
Richard, you seem to have a particular affection for Banana Republic.
You're personally running that brand. Are you any closer though,
to finding someone else to do some of that work
for you?
Speaker 2 (08:07):
We've met some extraordinary talent. We are very close to
what we believe will be the right pick at the
right time, and as you see, we're continue to we're
continuing to strengthen the brand. So as much as obviously
we're sort of looking for the right person, we take
these positions very seriously and we want to make sure
that we have the right talent that can take that
(08:27):
brand and drive it to the next level.
Speaker 3 (08:29):
All right, Richard, thanks so much for your time. Really
appreciated GAP CEO Richard Dixon talking to us about his results.
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