Gap shifts focus to Old Navy, Athleta brands as part of updated growth strategy

Key Points
  • Gap expects the Old Navy brand to exceed $10 billion in net sales in the next few years.
  • The retailer expects its athleisure nameplate, Athleta, to exceed $1 billion during the period.
  • Gap plans to open about 70 stores in the next three years.
An employee hands a customer a shopping bag at an Old Navy store in San Francisco.
David Paul Morris | Bloomberg | Getty Images

Gap on Wednesday announced plans to achieve what it calls "long-term, balanced growth," as the apparel retailer has been struggling to grow in an erratic sales environment.

By focusing on its two "growth brands," Gap expects net sales at Old Navy of more than $10 billion and sales at its athleisure nameplate, Athleta, to exceed $1 billion during the next few years. These gains will come as a result of U.S. store expansion efforts and growth in e-commerce and mobile, Gap said.

The news sent the retailer's stock climbing by 6.5 percent Wednesday afternoon.

"Over the past two years, we've made significant progress evolving how we operate — starting with getting great product into the hands of our customers, more consistently and faster than ever before," CEO Art Peck said in a statement.

"With much of this foundation in place, we're now shifting our focus to growth," Peck added. "We will leverage our iconic brands and significant scale to deliver growth by shifting to where our customers are shopping — online, value and active."

Gap said it will also shift focus in its real estate strategy. It plans to add roughly 70 stores net over the next three years.

That includes the addition of about 270 Old Navy, Athleta and what Gap calls "value expressions" across its real estate portfolio. Gap will simultaneously shutter about 200 underperforming Gap and Banana Republic shops.

The traditionally brick-and-mortar retailer said it will also be increasing its online presence, which has boasted double-digit sales growth of late. Gap will soon be rolling out a buy online, pickup-in-store service, the company said on Wednesday.

Gap is also exploring smaller-format stores in some cities. Across all of its apparel brands, Gap holds roughly 3,600 company-operated and franchise stores.

In an attempt to cut costs, Gap hopes to save about $500 million in expenses over the next three years. The company added that it plans to reinvest a portion of those savings in its growth initiatives, "providing opportunity for margin expansion."

Just last month, Gap reported better-than-expected second-quarter earnings and raised its full-year profit forecast. The better numbers were boosted by strong demand for Old Navy merchandise and fewer discounts, Gap said.

On a call with analysts and investors, Peck also pointed to strength in Athleta and Athleta Girl.

Including Wednesday's gains, Gap shares are up 14 percent in 2017.

WATCH: Gap reports second-quarter earnings

Gap revs. beat $3.80B vs. $3.77B est.
Gap revs. beat $3.80B vs. $3.77B est.