Gap Inc. ‘Powers’ Through Strong First Quarter

David Moin

May 27, 2021 at 5:40 PM·5 min read

Gap Inc., crediting macro tailwinds and growth strategies taking hold, swung into profitability last quarter amid huge comparable sales gains.The San Francisco-based operator of Gap, Old Navy, Banana Republic and Athleta reported a net profit of $166 million for the quarter ended May 1, versus a loss of $932 million in the year-ago period. Earnings per share were 44 cents versus a loss of $2.51 in the 2020 quarter.More from WWDStores Reopen for Shoppers in LA and NYC
Operating profits rose to $240 million compared to a loss of $124 billion in the year-ago period.Net sales rose 89 percent to $3.99 billion last quarter from $2.11 billion a year ago, and were 8 percent above the 2019 quarter. Comparable sales were up 28 percent year-over-year, and up 13 percent from 2019.Online sales grew 82 percent from the first quarter of 2019 and represented 40 percent of the total business. Store sales declined 16 percent versus the first quarter of 2019, primarily due to strategic closures and COVID-19 closures outside of the U.S.“Our Power Plan 2023 is taking hold,” said Sonia Syngal, chief executive officer of Gap Inc., on Thursday. “Investments in demand-generation, coupled with macro tailwinds, supercharged our brands. Gap Inc. delivered sales growth of 8 percent over 2019 pre-COVID-19 levels, with particular strength at Old Navy and Athleta, a healthy and growing Gap business in North America, and market share gains that outpaced the industry.”The company estimated that COVID-19-related closures in markets outside of the U.S. resulted in approximately 2 percent of sales decline versus 2019. Additionally, permanent Gap and Banana Republic store closings, as part of the “Power Plan 2023” strategy, reduced net sales by about 5 percent versus 2019 but were earnings accretive.

Gap Inc.’s Power Plan three-year strategy was introduced last fall. It focuses on growing the Old Navy and Athleta brands while downsizing Gap and Banana Republic and shed small businesses. Recently, Intermix was sold to Altamont Capital Partners and Janie and Jack was sold to Go Global Retail.“As stores’ traffic came back, we sustained our digital dominance with 82 percent online growth versus 2019,” Syngal said. “And while active and fleece continue to soar, we saw a resurgence in summer fashion with dresses rebounding, showing that customers are emerging from the crisis wanting to express their style without sacrificing the comfort and digital convenience they’ve become accustomed to. Through the power of our brands, platform and portfolio, we deliver it all.”Katrina O’Connell, executive vice president and chief financial officer, added: “The actions we’ve taken, aligned with our Power Plan 2023 strategy, to reduce discounting, restructure our fleet, and divest our smaller businesses are enabling continued investment in growth and driving us toward our operating margin goal of 10 percent in 2023.”Several retailers, including Macy’s Inc. and Abercrombie & Fitch Co., also reported strong first-quarter results due to government stimulus, the rollout of vaccinations and decline in COVID-19 cases as well as people starting to go out again.Gap raised its reported full-year diluted earnings per share guidance to be in the range of $1.55 to $1.70. Excluding charges associated with divestiture activity related to the Janie and Jack and Intermix businesses, full-year EPS on an adjusted basis are expected to be in the range of $1.60 to $1.75.Gap stated that the outlook “does not include potential impacts of our ongoing strategic review of the European business. In addition, the company continues to closely monitor the impact of COVID-19-related store closures globally, as well as challenges related to the supply chain and port congestion.”The company now expects net sales growth for fiscal year 2021 to be in the low-to-mid 20 percent range versus 2020, an increase versus the previous guidance of mid- to high teens. The outlook reflects lost revenue from divesting Janie and Jack and Intermix, which together represented about 2 percent of annual company sales. This week, the company said the Gap Home collection will be sold exclusively on walmart.com and subsequently also in Walmart stores.By division, Old Navy Global saw net sales rise 27 percent versus 2019; comparable sales were up 35 percent year-over-year and up 25 percent versus 2019. The gains were attributed to “compelling product storytelling, values-driven messaging, customer acquisition and strong transaction metrics. Growth in key categories like active and fleece remained strong, and seasonal categories are now trending favorably as consumers move into a new phase of pandemic recovery, planning vacations and summer activities,” the company said in its statement Thursday.At Gap Global, net sales declined 16 percent versus 2019, with permanent store closures resulting in an estimated 11 percent sales decline, and international COVID-19-closures driving an estimated 4 percent decline on a two-year basis. Comparable sales increased 29 percent year-over-year and decreased 1 percent versus 2019.The Gap North America business “is healthy and growing with first-quarter comparable sales up 9 percent on a two-year basis. ”This week, the company disclosed that the Gap Home collection will be distributed exclusively at walmart.com, and subsequently also at Walmart stores. The arrangement “marks further progress in the company’s objective of creating strategic partnerships to amplify brand reach.”Banana Republic Global saw net sales decline 29 percent versus 2019. Comparable sales were down 4 percent year-over-year and down 22 percent versus 2019.“Redefining casual luxury and heightened creativity are top priorities as the team lays the foundation for transformation,” the company said Thursday.Athleta reported that net sales were up 56 percent versus 2019. Comparable sales grew 27 percent year-over-year and 46 percent versus 2019. Athleta’s digital business was up 113 percent compared to the first quarter of 2019, while achieving “record” regular-priced sales . Product relevance and purpose-led marketing were cited as key factors in the growth. “The team made significant strides driving brand awareness during the quarter through the launch of inclusive sizing and with the announcement of a partnership with Simone Biles, the most decorated gymnast in World Championships history,” the company said.The company continues to expect to open about 30 to 40 Old Navy and 20 to 30 Athleta stores in 2021, as well as close about 75 Gap and Banana Republic stores in North America.

Reuters
China passes tariff law as tensions with trading partners simmer
China on Friday passed a law leaving its biggest trade partners in no doubt that it can hit back should they put tariffs on the exports of the world's No.2 economy as Washington and Brussels take aim at Beijing over excess industrial capacity. The Tariff Law, which was approved by China's top legislature after three rounds of deliberations going back to 2022, is the latest addition to Beijing's arsenal of trade defence instruments as it maintains an uneasy truce with the U.S. following a trade war that kicked off during the Trump administration. The law, which will take effect from Dec. 1, outlines a range of legal provisions related to tariffs on Chinese imports and exports, from what constitutes tax incentives to China's right to hit back at countries that renege on trade agreements.
11m ago
AFP
Bangladesh children sweat at home as heatwave shuts schools
Classes are cancelled across Bangladesh due to searing heat, but high school student Mohua Akter Nur found the soaring temperatures at home left her in no state for homework.Bangladesh authorities expect to reopen schools from April 28, before temperatures are expected to recede.
19m ago
NBC News
Pennsylvania brings protest votes to center stage
Beneath the surface of Pennsylvania’s mostly sleepy primary was a trend that's stalked Joe Biden and Donald Trump across the country: a substantial protest vote.
20m ago
NBC News
As USC cancels commencement, Columbia students worry theirs could be disrupted
After the University of Southern California canceled its main commencement, students at other campuses with protests wonder if theirs will be next.
25m ago
TODAY
When should you not brush your teeth? Dentist goes viral for sharing 3 surprising situations
Practicing oral hygiene like a dentist also means knowing when not to brush your teeth.
25m ago
AFP
China warns Blinken over deteriorating ties in talks
China on Friday urged US Secretary of State Antony Blinken to address rising disagreements or risk a "downward spiral" between the two powers as talks opened in Beijing."Should China and the United States keep in the right direction of moving forward with stability, or return to a downward spiral?
28m ago
AFP
Honduras detains 3 Americans in sex trafficking probe
Three Americans and a Honduran were ordered detained on Thursday in a sex trafficking case that shocked the country, following the disappearance of a university student in 2022 while jet-skiing in a popular tourist area.A 22-year-old Honduran university student disappeared on January 1, 2022 after going out to sea aboard a jet ski.
36m ago
Reuters
India begins voting in second phase of giant election as Modi vs Gandhi campaign heats up
India began voting on Friday in the second phase of the world's biggest election, as Prime Minister Narendra Modi and his rivals raise the pitch of the campaign by focusing on hot-button issues such as religious discrimination, affirmative action and taxes. Almost one billion people are eligible to vote in the seven-phase general elections that began on April 19 and concludes on June 1, with votes set to be counted on June 4. Modi is seeking a record-equalling third straight term on the back of his economic record, welfare measures, national pride, Hindu nationalism and personal popularity.
42m ago
AFP
Indian election resumes as heatwave hits voters
India's six-week election juggernaut resumed on Friday with millions of people expected to line up outside polling stations in parts of the country hit by a scorching heatwave.Earlier this week, India's election commission said it had formed a task force to review the impact of heatwaves and humidity before each round of voting.
50m ago
TODAY
How to stop intrusive thoughts once and for all, according to psychologists
Intrusive thoughts are those pesky unwanted thoughts that pop into your mind. While everyone has them, they can be distressing. Learn how to stop them from distracting you.
52m ago
AFP
Snap shares pop after revenue tops expectations
Shares in social media company Snap, which runs the youth-focused Snapchat, soared nearly 25 percent on Thursday after it reported more quarterly revenue than expected by analysts.Snap reported revenue of $1.2 billion compared with $989 million in the same period a year earlier.
56m ago
USA TODAY
17 states sue EEOC over rule giving employees abortion accommodations in Pregnant Workers act
Tennessee leads a lawsuit by 17 states over a rule in the Pregnant Worker Fairness Act providing employees accommodations like time off for abortions.
56m ago
AFP
Mould-breaking Miss Germany defies wave of online hatred
As a mother who is almost 40 and who was born in Iran, the new Miss Germany Apameh Schoenauer stood out at the beauty pageant. "I took part in Miss Germany because I wanted to change something," said Schoenauer, an architect and mother of a toddler, who moved to Germany aged six.
59m ago
AFP
Oil: 'Mother of corruption' in Venezuela
Corruption in Venezuela's oil industry is a many-headed monster that has devoured billions of dollars in taxpayers' money in the past 20 years, experts say. To date, oil-related graft has cost the country tens of billions of dollars, with "very little chance of getting it back," she said.
1h ago
AFP
Microsoft expands its AI empire abroad
Microsoft, the tech titan most closely associated with AI, has announced nearly $10 billion in investments in artificial intelligence abroad in recent months, the price it is willing to pay to remain a top player in this crucial market.Since February, Microsoft has unveiled AI investments of $3.4 billion in Germany, $2.1 billion in Spain and $2.9 billion in Japan, over two years.
1h ago
AFP
Frozen in time: Colombian town's unexplained mummies
In a small town high in the Colombian Andes, Clovisnerys Bejarano kneels before a glass box holding the petrified corpse of her mother, who died 30 years ago, but looks as if she might just be asleep. In the late 1980s, some 50 mummies were found in the mausoleum every year, but the rate has declined to a handful per year, said Vergara.
1h ago
Reuters
Brazil's top court temporarily suspends payroll tax exemption law
A Brazilian Supreme Court justice on Thursday temporarily suspended a law extending payroll tax exemptions for 17 sectors of the economy, according to a decision seen by Reuters. Justice Cristiano Zanin granted an injunction suspending part of the law after a government request. President Luiz Inacio Lula da Silva last year vetoed the bill passed by Congress extending the payroll tax exemptions until 2027, but lawmakers later voted to block his veto.
1h ago
Associated Press
Guatemalan prosecutors raid offices of Save the Children charity
Guatemalan prosecutors raided the offices of the charity Save the Children on Thursday, citing a complaint alleging the violation of migrant children’s rights. Prosecutor Rafael Curruchiche said in a video to media that the complaint filed by an unidentified foreigner had raised serious concerns because it involved allegations of abuse of children. The raid came a week after the secretary general of Guatemala's Public Ministry, Ángel Pineda, wrote a letter to Texas Attorney General Ken Paxton asking for support in addressing allegations that Save the Children and other aid groups “could be participating in child trafficking operations.”
1h ago
CBS News
Residents still have concerns about Flint's water
It's been a decade since the Flint water crisis began. Residents told CBS News the scandal still weighs heavily on the city.
1h ago
The Conversation
How bird flu virus fragments get into milk sold in stores, and what the spread of H5N1 in cows means for the dairy industry and milk drinkers
Five livestock experts who study infectious diseases in the dairy industry explain the risks as the FDA announces that about 20% of milk sampled from stores across the US tested positive.
1h ago

Latest Stories