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Gap cut its annual sales out look after weaker than expected results at Old Navy, Banana Republic, and Athleta. The CEO, Richard Dixon, blamed merchandising missteps, especially dresses at Old Navy, while saying the company is still early in its turnaround. And fortunately, surveillance anchor Lisa Abramowitz has got Richard Dixon on the show for us. So Richard, Lisa take it away with Richard. Thank you so much.
I really appreciate it. Matt. This is a real question, and I am so pleased to say that Richard Dixon, the CEO of the Gap company, is with us here today. And Richard, I want to just start with what went wrong with respect to the disappointing earnings and specifically how hard it is to get certain fashion calls right.
Yeah, Lisa, it's a great question, but I want to zoom out. First of all, we actually delivered progress this quarter, and we delivered it against several key metris. Important to recognize this is our ninth consecutive quarter of positive comparable sales. Three out of our four brands are growing. Comps were up two percent and that's building on two percent comp growth from last year. We outperformed our gross margin outlook
by thirty basis points. We won across all income cohorts gained share as our value proposition across the board continues to resonate, and we returned four hundred and fifty million dollars in cash to shareholders through dividends and share repurchases. As you call out, performance at the brand level was varied. First standout quarter at Gap brand up double digit ten percent on top of five percent last year. Old Navy delivered growth up one percent comp on top of last
year's three percent growth. Now that also marks the brand's six consecutive quarter of positive comps. We've been pursuing categories like Denim, Active, Kids, and Baby all which posted growth versus last year, and they continue to build relevance with our customers. Seasonal categories have gotten off to a weaker start, in particular dresses, where we just did not have the
right fashion and value equation. We actually overinvested some sales in inventory and didn't necessarily correctly anticipate what ended up to be a decline in the dress market. Where our dress assortment actually did resonate was in occasion dressing, which has more specific end use like weddings and easter. We've seen a change in customer acceptance of dresses during key peak moments, so summer stock up instead shifting more diversal
categories and styles that can be worn. Let's call it year round.
One thing that I've had as.
We get as we get through the seasonal dynamic. We're looking forward obviously to the back half, and I'm very confident in our ability to drive improvement.
You know, it is really notable, Richard, that both you and American Eagle came out reported certain pockets of disappointment amid otherwise robust performance and talked about how it wasn't because the consumer demand wasn't there, it was because of specific missteps. Is there something about the environment right now that makes it harder to get these things right? Because two different companies called out something similar in terms of
style issues fashion issues? Is it a moment or is it just the fashion industry?
Look, I probably think it's both, but both. I mean, the fashion industry is a dynamic industry. To your point, we are seeing consistency and strength and consumer behavior. But ultimately, you know, this is a dialogue with consumers that you
have to follow and ultimately drive. And in this particular case, again when you back up and you look at our whole portfolio, gain share consistency in growth nine consecutive quarters, three out of four brands, growing growth across all income cohorts, very specific call out on a category that, by the way, as we enter the second half, is very small. And so again you know this was to some extent, you know, dynamic the business that we're in, softness in the women's
dress business. But ultimately we believe as a portfolio we've got great room and a great back half ahead of us.
Why do you think then that investors don't seem to be feeling that. This morning, you see shares lower by more than sixteen percent. Year to date, shares are also lower by a similar amount. Why aren't they reflecting the strength that you're talking about.
Look, we feel very confident in where we're at and where we're going. We see great strength at the Gap brand, which again is is incredible double digit growth. We've got
now continued growth of Bin out of Republic. We just reported our fourth consecutive quarter Old Navy did deliver one percent comp and well, we expect sales to deliver flat to one percent now low single digits in the Q two and then moderated growth in the second half with the seasonal categories off to a weaker start in particular Dress, we are obviously on balance taking a more moderated view of the total year. We are also holding our operating
margin outlook. Our gross margin outlook is unchanged at flat to up slightly. We're continuing to maintain cost disciplines with SGNA as a rate to sales that's flat, and despite the lower sales outlook, which by the way, still represents growth, we're raising our earnings outlook from two dollars and thirty cents to two dollars and forty cents, which reflects eleven
percent growth year over year at the midpoint. And while this is our outlook currently on the top line, we aspired to outperform it as the brand strive for continuous improvement. That's why we're a long game. The companies in a healthy space and we're excited about what we have ahead.
Richard, I am curious how much upside there is potentially if you do get some of those those terra freebates that a lot of people were talking about, are you expecting that to potentially lead to an upside surprise?
You know, we we are. You know, we're an importer of record, so we qualify for a refund. That said, we use the reconciliation method, which has currently been excluded from Phase one. We've been encouraged by the progress that has been made for Phase one applicants in our industry. However, without being included in Phase one, the situation does remain fluid as to when and what amount of refund will ultimately be realized. Therefore, we're not providing a quantification at
this point. We haven't assumed any benefit in our outlook. But of course, you know, we anticipate that we'll share more as things become more tangible.
So Richard, just before I let you go, the takeaway here is casual dresses for the summer not really in anymore? Is that sort of not what's going on? That and said, we're going to be in Jans.
I think we overweighted our expectation of the dress category. Dresses are still an important category. People are still wearing dresses. What we do see is it's just more a Hasian based Whereas we drove more of that everyday dressing in mind, and we did see a shift and so dresses are
still important. We've got this. We're doing our best to move through the seasonal product and again as we move into the back half and the seasonal seasonal products are behind us, we think we've got great programs in place to drive growth.
Richard Dixon, always wonderful to speak with you. Thank you so much for being with us. That is the gap inc CEO and Matt. Evidently my casual dresses this summer.
Maybe I'm still a fan.
I'm still a fan.
Yes,