Gap shares surge as celebrity-driven promotions, new styles lure shoppers

(Bloomberg) — Wall Street likes what Gap Inc. is selling.

Shares jumped 15% at 9:34 a.m. in New York on Friday following an eye-popping earnings report that showed a fashion overhaul by new Chief Executive Officer Richard Dickson is working.

Read more: Gap Turnaround Bid Boosted by Stronger-Than-Expected Results

Dickson, famed for revitalizing the Barbie franchise for Mattel Inc., was brought in to Gap last August to revitalize the retailer known for T-shirts and denim. To do so, he has embraced celebrity marketing, paired up with an independent label and hired fashion designer Zac Posen as creative director for its mass-market Old Navy stores.

Actress Da’Vine Joy Randolph wore a custom Posen denim design to the Met Gala earlier this month. After Anne Hathaway wore a white Gap dress to a red carpet event in Rome, preorders for a version of it quickly sold out on gap.com.

The retailer’s goal is to “move at the speed of culture,” the CEO and president of the Gap Brand, Mark Breitbard, said in an interview. “Being part of the cultural conversation, leading this conversation being relevant is what it’s all about.”

Earlier this year, Gap released its “Linen Moves” campaign. Singer Tyla, whose song Water went viral on TikTok, starred in the advertisements which featured people clad in Gap linen dancing to Jungle’s Back on 74. The campaign appears to be working: the company saw strong linen sales in the first quarter of the year.

Gap isn’t the only retailer that’s reinventing itself in 2024. Abercrombie & Fitch Co. has found success by embracing its 1990s past, as wide-leg pants and low-rise baggy jeans have come back in style. And Urban Outfitters Inc.’s Free People’s athleisure brand has struck a chord with shoppers.

All three of these companies “largely appeal to the comfortable casual part of the apparel market, which consumers have willing to spend on over the start of this year,” Neil Saunders, a retail managing director at GlobalData told Bloomberg via email. They “also all tried to chase fashion trends so that they’re offering interesting styles.”

Gap’s success in the most recent quarter wasn’t just because it made the right fashion choices. Its inventory was leaner, down 15% from last year. And in what Breitbard called “a huge cleanup effort,” the retailer closed unproductive stores and worked to improve quality.

The company’s most recent earnings provide “evidence of a textbook retail recovery as sales improved, margins expanded and all banners are gaining share,” Barclay’s Adrienne Yih wrote in a note to clients.

There were earlier indications that the turnaround strategy was working. In the last quarter of 2023, Gap surprised analysts by posted its first revenue growth after four consecutive quarters of decline. Through Thursday’s close, Gap share had already gained 7.7% on the year through Thursday’s close, well ahead of the 4% rise in the broader S&P MidCap Consumer Discretionary Index.

But for a clothing retailer, having the right looks ultimately determines the bottom line. Recently, Gap partnered with independent fashion label Dôen to offer a jean jacket for $128, higher than the retailer’s regular $69-to-$100 offerings. The retailer has also teamed up for on collections with Palace, the skateboarding brand, and fashion innovator Dapper Dan.

Consumers can expect to see more of these partnerships in the future. Breitbard said Gap would continue to look for more storytelling collaborations that will “bring some brand heat and new consumers to the brand.”

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