The Gap, Inc. (NYSE:GPS) Q3 2019 Earnings Conference Call - Final Transcript
Nov 21, 2019 • 05:00 pm ET
[Operator Instructions] Our first question will come from Alex Walvis with Goldman Sachs.
Hello, this is [Indecipherable] on for Alex. Thanks so much for giving -- for taking the time for a question. I was wondering if we could dive into Gap brand a little bit deeper, specifically by channel and geography. Can you help us breakdown trends between Gap stores and specialty Gap outlet and then also if you had any impact from some of the disruption in Asia and Hong Kong this quarter?
Sure. As I said, the Gap brand had some bright spots in the quarter, particularly as it pertains to the denim initiatives that they had stated were going to be a priority for the brand. And so we were quite pleased with the performance of denim really across channels and geographies. We don't disclose the specific results by channel, but I would say that, particularly in specialty, we were pleased with the progress we saw overall. We did definitely have some disruption in Asia. The Hong Kong situation is a very difficult situation and obviously had an impact on the business in that part of our China business and so we saw some challenges there. We also had some softness in Japan, which was a little bit of a product acceptance issue, but also some other macro factors that affected traffic overall in that geography.
So net-net, as you look at it, as I said, the progress we continue to see against margin rate is exactly what we think is a priority. Seeing the success in denim when we bring together great product with great marketing and great in-store execution does give us some optimism as we continue to drive that same formula across more categories and more channels. So, still lots of work to do on the brand, but seeing some positive signs.
Great. And if I could just ask one more as a quick follow-up. Regarding gross margins in your outlook for the fourth quarter, you're comping off of a relatively easy compare in 4Q -- 4Q '18. Can you help us understand some of the moving pieces and the puts and takes by maybe brand and how you're thinking about the promotional structure with a particular eye on how you're thinking about the Old Navy gross margin given that performance hasn't been quite as good as you had previously thought it would be?
As I said, on a year-to-date basis, most of our gross margin challenge has come from the Old Navy brand and we've actually had some positive from Gap. Particularly in the third quarter, the expectations for those two brands actually came out different than we expected. And so, as we move into Q4, and particularly with the revision in guidance we've made, what we've acknowledged is that the trends we have been seeing have not yet inflected and that's why we provided the guidance that would say Q4 margin is going to be fairly consistent with what we have seen