Gap Inc. Boosts Outlook, Powered by 65% ​​Online Sales Growth – Sourcing Journal

Led by sales gains at Old Navy and Athleta, Gap Inc. achieved its highest second quarter net sales in over a decade.

In a word: Gap Inc. said its second-quarter online sales were up 65% from the second quarter of 2019 and accounted for 33% of total activity. At the same time, store sales were down 11% from the second quarter of 2019, mainly due to the impact of the strategic divestitures and closures and closures of Covid outside the United States.

“Our strong second quarter performance, demand for our billion dollar focused lifestyle brands and the continued strength of our customers give us confidence to increase our sales and earnings outlook for the second consecutive quarter,” Katrina O’Connell, executive vice president and chief financial officer, said. “As we fuel profitable growth for the back half and beyond, we are focused on strategically expanding addressable markets to take equity, creating lifetime value for clients and launching new initiatives to transform Digitally Gap Inc. for the future. “

The company raised its forecast for full-year diluted earnings per share (EPS) to between $ 1.90 and $ 2.05. This outlook reflects the costs incurred in connection with the disposal of the Janie & Jack and Intermix activities, as well as the estimated costs linked to the strategic changes in the company’s European activities. Excluding these charges, EPS for the entire year on an adjusted basis is expected to be between $ 2.10 and $ 2.25.

Gap Inc. said its outlook for the full year reflects the impact of expected headwinds on its global supply chain, potential inflationary pressures and the current Covid-19 environment.

The company now expects net sales growth for fiscal 2021 to be around 30% from 2020. This outlook reflects the revenue loss associated with the company’s decision to change its business model. European operations, as well as the completed divestitures of Janie & Jack and Intermix.

The operating margin is expected to be around 7%. The adjusted operating margin forecast has been increased to approximately 7.5%, which represents an accelerated progress towards the company’s goal of achieving an operating margin of 10% by the end of 2023.

The company expects third quarter inventory levels to be up single-digit average from the third quarter of fiscal 2020. Gap Inc. continues to expect capital spending amount to approximately $ 800 million in fiscal 2021. In accordance with the Company’s Power Plan 2023 strategy. , capital spending will primarily support higher return projects including digital capacity, loyalty and supply chain projects, as well as store growth investments for Old Navy and Athleta.

The company continues to expect to open approximately 30 to 40 Old Navy and 20 to 30 Athleta stores this year, and is closing approximately 75 Gap and Banana Republic stores in North America. Gap Inc. ended the second quarter with 3,494 stores in more than 40 countries, of which 2,937 were operated by the company.

Closing inventories were up 2% from the second quarter of 2020. Compared to the second quarter of 2019, inventories were down 2%.

The company ended the second quarter of fiscal 2021 with $ 2.7 billion in cash, cash equivalents and short-term investments. Year-to-date free cash flow, defined as free cash flow from operating activities less purchases of property, plant and equipment, was $ 523 million. Year-to-date capital expenditures were $ 269 million.

Sales: Net sales for the second quarter ended July 31 increased 5% to $ 4.2 billion from 2019. Gap Inc. said that due to the impact of Covid-related store closings the Last year, financial comparisons for the quarter were made primarily against 2019.

Strategic permanent store closures and recent divestitures of the Janie & Jack and Intermix businesses reduced net sales by approximately 8% from 2019, down from 2019.

Comparable sales increased 3% year-on-year and 12% compared to 2019.

Old Navy Global net sales increased 21% from 2019. Comparable sales were flat from last year and up 18% from 2019. Strong consumer reaction to a launch Loyalty has led to customer acquisition, boosting Old Navy’s customer base to an all-time high. in the quarter.

Gap Global’s net sales were down 10% from 2019, with permanent store closings leading to an estimated 14% drop in sales and Covid’s international closings leading to an estimated 1% drop on a two-year basis. Global comparable sales fell 5% year-on-year and increased 3% from 2019.

In North America, comparable sales growth of 12 percent on a two-year basis was driven by strength in key categories including sleep, active and fleeces. Gap’s Partner to Amplify strategy advanced during the quarter with the launch of the Gap Home partnership with Walmart, reaching millions of Walmart customers. Additionally, the brand completed the first Yeezy Gap presale with the round jacket generating strong response, with 75% of pre-order customers new to the brand.

Banana Republic Global’s net sales were down 15% from 2019, with permanent store closures leading to an estimated 10% drop and international Covid closures leading to an estimated 1% drop on a two-year basis. Comparable sales increased 41% year-on-year and down 5% from 2019.

Net and same-store sales reflect a significant improvement over the first quarter of 2021. Strong product execution and assortment boosted brand relevance, resulting in reduced discounts.

Athleta’s net sales increased 35% from 2019. Comparable sales increased 13% year-over-year and 27% from 2019.

Performance lifestyle products performed well when customers returned to work and engaged in more activities while valuing comfort. Inclusive sizing, launched in the last quarter, continues to perform well, gaining strong customer loyalty.

The brand looks to build on the success of the second quarter with the launch of AthletaWell, an immersive digital platform designed to build loyalty, engagement and a community of empowered women. Additionally, following the launch of Athleta Online next week in Canada, the brand will soon be opening stores in Toronto and Vancouver.

Earnings: Net income for the quarter was $ 258 million, compared to a net loss of $ 62 million for the same period in 2020 and net income of $ 168 million for the period 2019.

Diluted EPS stood at 67 cents. Excluding charges mainly related to strategic changes to its operating model in Europe, adjusted EPS was 70 cents.

Gross profit rose 17 percent to $ 1.82 billion, while gross margin was 43.3 percent, an increase of 440 basis points. The main drivers were rent, occupancy and depreciation (ROD) leverage of 330 basis points mainly related to online growth, store closings and rent renegotiations. Merchandise margin increased 110 basis points due to strong product acceptance and reduced discounts, offsetting approximately 130 basis points for higher shipping costs related to strong business growth in company line.

The CEO’s point of view: Sonia Syngal, CEO, said: “Our talented teams achieved our highest second quarter net sales in over a decade. Our strategy is driving growth as evidenced by the continued strength of Old Navy and Athleta, the second consecutive quarter of two-year positive comparable sales from Gap Brand in North America and the acceleration of Banana Republic. Intensified marketing investments, improved brand management, and technological improvements are paying off as our brand power accelerates. “

“I look forward to our integrated loyalty program and Old Navy’s inclusive shopping experience, BODEQUALITY, to take root in the rear half, both key elements of our 2023 Power Plan and important drivers of our business. ‘long-term sustainable growth,’ she added.

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David A. Albanese

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