A Detailed Look At Gap’s Crown Jewel: Old Navy

by Trefis Team
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Gap Inc (NYSE: GPS) has delivered mixed performance over the last couple of years with the company’s iconic brand, Gap Global, being a drag on the company’s overall performance. While the company’s oldest brand has struggled to retain its customer base, Old Navy has grown considerably to become the company’s largest brand. Trefis highlights the importance of the Old Navy brand for Gap in an interactive dashboard. A look at Old Navy’s revenue and profit trends over the years also makes sense given that Gap is spinning-off the Old Navy into a separate entity.

Why Is Old Navy Gap’s Most Important Brand?

#1 Old Navy Contributes Nearly Half Of Gap’s Revenues

  • Old Navy is the company’s largest brand, accounting for nearly 50% of the company’s revenues. The brand has added more than $1.1 billion to total revenues since 2015 at an average annual rate of 5.5%.
  • This growth can be primarily attributed to an increase in store count, strong comparable sales growth, and expansion of the mobile and digital business.
  • We expect this segment to continue its steady growth, with revenues increasing at a rate of 3.5% to over $8 billion in FY’2019 (ending January 2020).

#2 Notably, the contribution of the biggest brands to the top line of Gap’s competitors is similar and ranges from 40% to 60%

Data around how the contribution of their biggest brand to the top line of competitors Abercrombie & Fitch, L Brands and Urban Outfitters has changed over the years is available in our interactive dashboard.

 

#3 Old Navy Has Outpaced Growth In Gap’s Total Revenues In Each Of The Last 3 Years

  • Gap has added $783 million to total revenue since 2015 at an average annual rate of 1.6%.
  • On the other hand, Old Navy alone has added more than $1.1 billion to Gap’s total revenue at an average annual rate of 5.5%. Nearly all of Gap’s incremental revenue growth has come through Old Navy since 2015 – more than making up for the company’s declining revenues of Gap Global brand which has lost more than $180 million in total revenues since 2015.

 #4 Old Navy Has Achieved Strong Comparable Sales Growth Over The Last Few Years

  • Old Navy has seen decent success in the last couple of years, with the brand achieving positive comparable sales growth in each of the last three years.
  • On the flip side, Gap’s comparable sales growth dived by 2% in 2016 before recovering to achieve a growth of 3% in 2017. However, comparable sales were flat in 2018.
  • Old Navy has comfortably outpaced the company’s growth led by strong sales across all product categories.

#5 Average Revenue Per Store Of Old Navy Is Almost 30% Higher Than The Consolidated Figure For Gap

Additional details about how Old Navy’s number of stores and average revenue per store have trended over recent years is available in our interactive dashboard.

 

Conclusion

  • Old Navy is the strongest brand under Gap’s diversified brand portfolio – accounting for most of the company’s growth.
  • It is no surprise that the company plans to unlock significant value by spinning-off its star brand. The spin-off will also help the new company focus on its struggling Gap Global brand by allocating resources better and by developing strategies tailored specifically to the brand.
  • With growth fundamentals remaining strong for the brand, we expect Old Navy to continue to achieve steady growth in the coming years.

 

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