March 23, 2023

A Gap store in New York, August 2, 2020.

Scott Mlyn | CNBC

Gap said Thursday that fiscal first quarter sales exceeded pre-pandemic levels when buyers turned to Old Navy and Athleta to freshen up their wardrobes for the summer.

The retailer increased its full-year sales outlook as Gap’s namesake in North America shows early signs of improvement and e-commerce growth continues to be strong. The company said 80% of its sales come outside of the traditional mall: either online, in strip centers, or from street-level locations.

However, Gap continues to face supply chain challenges as well as obstacles in sourcing raw materials as Covid cases continue to rise in countries like India, management said. A revival of Covid-19 cases in Canada, Europe, China and Japan will pose a short-term risk to demand.

Gap’s stock recently fell about 2% in expanded trading.

“As Aktiv and Fleece continued to rise, we saw a resurgence in summer fashion with dressable clothes again. This shows that customers are emerging from the crisis to express their style without sacrificing the comfort and digital convenience to which they are accustomed have, “CEO Sonia Syngal said in a statement.

This is how Gap developed in the period up to May 1, compared to the expectations of the analysts surveyed by Refinitiv:

  • Earnings per share: adjusted 48 cents compared to an expected loss of 5 cents
  • Revenue: $ 3.99 billion versus $ 3.45 billion expected

After a loss of $ 932 million, or $ 2.51 per share, last year, Gap had a profit of $ 166 million, or 43 cents per share. Excluding the one-time charges related to the Janie & Jack and Intermix sales, Gap made 48 cents per share for the quarter. That was well before an expected loss of 5 cents.

Total sales rose from $ 2.11 billion last year to $ 3.99 billion when the retailer’s stores were closed for a period of time due to the Covid pandemic. This exceeded a refinitive estimate of $ 3.45 billion.

Gap estimated that ongoing Covid-related closings in markets outside of the US reduced sales by 2% in the most recent period from 2019. Overall, sales increased 8% on a two-year basis in the first quarter of the fiscal year.

At Old Navy, like-for-like sales increased 35% year-over-year and 25% year-over-year. In the Athleta business, like-for-like sales increased 27% year over year and increased 46% on a two-year basis. Together, these two brands generated 66% of company-wide sales in the most recent quarter, Gap said.

At Gap’s banner of the same name, comparable sales worldwide increased by 29% compared to the previous year, but declined by 1% on a two-year basis. In North America, the brand showed signs of progress. Comparable sales in the region increased by 9% compared to 2019.

Banana Republic sales declined 4% year over year on a like-for-like basis and 22% year-over-year as fewer consumers looked for outfits to wear to work.

Online sales increased 82% year over year and accounted for 40% of total sales. In-store sales declined 16% on a two-year basis, largely due to ongoing store closures and remaining Covid restrictions outside of the U.S., Gap said.

A future outside of the mall

As Gap seeks future growth, it will increasingly be found outside of traditional malls, as recent results show.

The company announced last fall that it would close around 350 of its locations in Gap and Banana Republic in North America by the end of fiscal 2023, many of which are in shopping malls. As part of that roadmap, Gap said Thursday that 75 of those underperforming stores will close this year.

The retailer is now calling for adjusted earnings between $ 1.60 and $ 1.75 per share this year, with net sales rising in the low to mid 20 percent range starting in 2020. percentage growth in sales among teenagers.

However, Gap noted that the outlook does not include any potential impact from the ongoing strategic review of its European business, while overseas store closings related to Covid and port congestion continue to pose headwinds.

Analysts had targeted earnings per share of $ 1.38 for fiscal 2021, with revenue up 17.8% year over year.

With the launch of a new private label, Gap will soon also be moving into Walmart’s big box stores. And Gap’s highly anticipated collaboration with rapper Kanye West on the Yeezy Gap line is expected to take place later this year.

“Through partnerships, we can expand the reach of our brand to customers,” said Syngal in a conference call on the results.

The Gap share closed around 4% on Thursday. The stock is up 74% year-to-date and has a market cap of $ 13.2 billion.

The full press release on Gap’s earnings can be found here.