By coinnews 
00:00 Speaker A
Gap sinking on the expected cost of tariffs despite reporting better than expected first quarter results. Let’s toss it over to Yahoo Finance executive editor Brian Sozzi for his conversation with Gap CEO Richard Dixon.
00:14 Brian Sozzi
All right, thanks so much Maddie. Uh Richard, always great to see you. Uh Maddie mentioned the stock decline down about over 20% of the results.
00:25 Brian Sozzi
To the average investor out there on our platform right now, does this stock decline reflect the trends you’re seeing in the business?
00:34 Richard Dixon
Well, Brian, we first off, we don’t manage our day-to-day business focused on the daily stock price movement and clearly it’s a dynamic market out there, but what’s most important is that our brand reinvigoration is really working and it’s showing in our results. I mean, this was a strong quarter. We exceeded expectations across all key financial metrics. Uh the strategic priorities that we’ve laid out are very clear and despite a dynamic environment, we’re staying firmly on course. It’s showing up in the results. comps up 2%. Uh this is the fifth consecutive quarter of positive comps for us. Importantly, we gained market share uh for the ninth consecutive quarter. We expanded gross margin and operating margin during the quarter. We controlled expenses and most importantly, we increased our EPS by 24%. Uh and lastly, we continue to strengthen our balance sheet. We’ve got a strong cash flow, cash balance of 2.2 billion. Uh honestly, that the Q1 performance is yet another proof point that the strategy is working. I remain incredibly optimistic, realistic about the opportunities ahead. Uh and as we navigate a highly dynamic environment, we’re really quite pleased with the progress.
02:24 Brian Sozzi
Richard, I’ve talked to you every quarter, I think since you took over as CEO, and every quarter I would say Gap has been like a runner, like getting increasingly faster, turnaround is gaining steam, but and then it’s smack, and now we’re in a trade war. Has this trade war stalled the progress you’ve been able to make within your brands?
03:03 Richard Dixon
You know, no. I mean, look, it it there’s like any business, and we’ve talked about this before, we’re constantly navigating complexity. And there’s all sorts of complexities in running a business and in this case, uh tariffs is a focus. But it’s our responsibility to do so without ever compromising the long-term integrity of our strategy. And as we know, the most important part of this is the consumer. So we’re very concentrated on ensuring that the consumer proposition and the value orientation of our brand uh resonates and it is resonating. Again, nine consistent quarters of market share gains. We’re breaking through in a competitive landscape. We’re reinvigorating our brands and the statistics are showing that our progress is really there.
04:28 Brian Sozzi
Richard, I was talking to uh this week the CEO of HP. Of course, they make printers, PCs, and he gave me an interesting stat. He said, Brian, we’re going to be out of China very soon. Completely out. It shocked the hell out of me. I mean, are you there yet?
05:03 Richard Dixon
Well, China as an example in our last conversation, I think I shared with you that China was about less than 10% of our sourcing, which we’ve been diversifying our sourcing footprint for several years. Um I’m really pleased with the team’s progress, uh quite frankly, and continuing that diversification. We shared yesterday that we now expect China to be less than 3% by the end of this year. Uh so a real uh diversification in in place and by the end of 2026, we’re planning for no country to account for more than 25%. Uh also, you know, one of the important notes is we’re investing in the US is we plan to double our vendor sourcing of American grown cotton in 2026 as part of our diversification strategy.
06:15 Brian Sozzi
Are you able to, let’s call them capsule collections. Will there ever be a time when Gap is making clothes in the US?
06:33 Richard Dixon
We do have some uh some manufacturing in the US. We do denim, we do some t-shirts, we do knits. Uh we do also run all of our design, development, all of our retail operations. Uh we’re an iconic portfolio of American brands. We have about 90% of our sales in the quarter in the US. We have an American workforce of over 65,000 in the US. Uh it’s an incredibly important market for us. Uh we’ve got great vendor sourcing partners domestically, and we already use a significant amount of US cotton. And as I said, we plan to double our sourcing of US cotton in 2026. We’re increasing our design investment. Um we’re working with very um exciting design houses in the US. So we continue to constantly evaluate opportunities uh and also concentrate on where we can invest domestically.
07:52 Brian Sozzi
Just given the globalization push for retail past 10, 20 years, Richard, has that ship just sailed in terms of making clothing at scale in this country?
08:11 Richard Dixon
Look, I think that that it’s it’s a it’s a big question with answers that are well known in our category. Um to the extent that we have a very diversified sourcing footprint, it is important. You know, we are the number one e-commerce apparel business in the US. We are the number one specialty apparel chain in the US. We’ve got a very large business across all categories of apparel. So it is important that we have agility in our manufacturing and sourcing footprint and we’re really pleased with the progress that we made and it does create a resiliency to the company that we’re enjoying right now.
09:07 Brian Sozzi
If there are no trade deals, if there isn’t a trade deal with China this year, Richard, does that bring the lower end of your guidance into play for the year?
09:20 Richard Dixon
Look, I think our outlook first off, um as we shared yesterday, first and foremost is transparent. Uh we were very purposeful in separating the outlook from the estimated tariff impact. And we believe that the outlook that we provided um gives a real perspective of the underlying health of the business, which is working, as evidenced by the exceeding expectations in the quarter and both Gap and Old Navy being obviously a strong uh performer in the quarter as well as consistent. So the estimated impact of the tariffs could still change. Uh you know, a couple days ago we had a new news in relation to uh to the tariffs. So um the first half of 2025 should be largely unimpacted by current tariffs. There’s nothing in Q1. Minimal impact to our Q2 outlook. And the estimated tariff impact that we provided today, uh and that we’ve shared with our investors is it’s primarily weighted to the second half. And as we also know, there’s going to be more information to come. It’s a constantly moving target. There’s another milestone uh uh day in terms of information on July 9th. So what we wanted to make sure is that we stay true to the long-term integrity of our strategy, that we monitor our business um associated with tariffs. We’re very realistic about it. As we shared, we’ve mitigated over half of the challenge on tariffs. We’re we’re determined to drive again, the other half uh as well and continue to do what we do with, you know, executional excellence.
11:25 Brian Sozzi
Richard, I I think I’ve told you this before, but I think the turnaround of Old Navy is not being talked about uh enough. Now you have Lindsay Lohan out there doing commercials, good to see her back in the fold. Uh I I dig me some Lindsay Lohan. But you also talked about on the earnings call about a lot of new, I guess income demographics that are coming into the Old Navy chain. Bigger picture, right now, given where the consumer is, financially, tariffs, you name it, is this just the perfect perfect environment for a chain like Old Navy?
12:15 Richard Dixon
First off, thank you for talking about Old Navy. We we we love our performance. We love our Old Navy brand. We delivered a really strong com performance up 3%. It is the ninth consecutive quarter market share gains. Uh as you know, we’ve been concentrating on strategically intending to drive categories like active and denim. Uh you mentioned Lindsay Lohan, we’ve got Dylan Efron in that spot, Quillan Blackwell. Uh we’ve even got Charo in there. It’s our latest campaign really focusing on active. Uh Old Navy is the number five player in the category. Uh and we continue to gain share in the quarter. Uh we’ve launched our studio smooth collection, which outperformed our expectations. Uh and it’s another step forward in the largest category in the industry. Denim was another standout category. Uh share gains throughout the portfolio, but particularly on Old Navy, it secured Old Navy’s position as the fourth largest adult denim brand in the US. Uh we also launched occasion dresses, which did incredibly well with strong full price sell through. So there’s real intent from a design, development, and marketing uh on certain categories that we believe we have a right to win in. And it’s a good example of not only pricing power, but when you really take big ideas with great product and great marketing, consumers find you. And these are foundational elements that we’ve established with Old Navy that underpin the brand’s Q1 performance and is giving us great confidence, obviously, as we move further and further into 2025.
14:27 Brian Sozzi
Pretty soon, Richard, it’ll be uh mid to end of July, back to school shopping. I’ve started to see a lot of new, well, I guess 90s trends have come back into the fold, giant wide leg jeans. I remember these when I was in high school. You’re a pretty cool guy. What’s going to be the hot back to school styles?
15:01 Richard Dixon
Well, I think you’re you’re calling it out. You know, we’ve seen baggy continue. Uh we’ve also seen embroidered denim, uh horseshoe, you know, all the fits that we’ve introduced in denim are resonating really well. I mean, the category is being driven by the assortment. And we’ve taken a very strong position in identifying that being the trend destination uh for denim across all the different fits. We’ve also soft essentials really start to take uh to take hold. Fleece has just been incredible. And and you’re right, the 90s trend, you know, this this sort of look back and retro uh perspective. It really does play very well into our portfolio. But it’s most important how we execute against that trend. And I think what you’re seeing is, as part of our reinvigoration playbook, it does identify, if you will, great creative, great trend right products that are amplified by terrific storytelling. And that’s translating to greater cultural relevance, which is driving revenue. And each one of our brands is at a different point in the process, but I have to say, Brian, I’m I’m incredibly encouraged by the team’s commitment in their execution and the improvements that we’re continuing to make across the portfolio.
16:47 Brian Sozzi
You know who’s right for the next Gap ad, Richard? The American Pie crew. All about the 90s stuff right there. Wide leg jeans, you name it.
17:02 Richard Dixon
You got it. Yeah, could be next up. You never know. We do have a lot of exciting collaborations coming and I know Brian, you’re going to be interested in a few of them.
17:13 Brian Sozzi
All right, Richard Dixon, Gap CEO, always good to see you.
17:17 Richard Dixon
See you again.
17:18 Brian Sozzi
Maddie, back to you.
17:20 Speaker A
So, thank you so much for bringing us that conversation. Really appreciate it.