Gap Falls Amid Weakness at Namesake Brand, Banana Republic

Gap Inc. reported third-quarter sales that exceeded estimates as e-commerce jumped, but weakness persisted at its namesake and Banana Republic brands. The shares fell in late trading.

Comparable-store sales, which are a key gauge of retail success, rose 5%, better than the estimate for a 2.4% decline from Consensus Metrix. The company said the gain was driven by a 61% jump in online sales.

While the company appears to be emerging from the sharp disruption of Covid-19 that has hurt apparel retailers, it still needs to fix the long-established performance gap between fast-growing Old Navy -- which saw its sales grow 15% -- and its namesake brand, where sales fell 14%. The company is closing poor-performing Gap stores while shifting the brand to an online focus.

“Digging beneath the numbers reveals that the hero of the hour is Old Navy which has, once again, come to the rescue of the other two main laggards which make up Gap Inc.,” Neil Saunders, managing director of GlobalData Retail, said in an emailed statement.

Banana Republic is also lagging, with sales declining 34%. The chain has been hurt by the work-from-home trend and is shifting its focus to casual fashion and away from its traditional work apparel. The company named Sandra Stangl, who worked previously at Williams-Sonoma Inc., as the brand’s chief executive officer. She’ll be tasked with changing the strategy to “affordable luxury.”

The Athleta line, meanwhile, which is a relative newcomer to the Gap’s stable, is thriving in 2020, the year of sweatpants. Sales rose 35% and comparable sales were the highest in the brand’s history.

Gap also named a chief growth officer -- a newly created position that will focus on executing strategy and leading growth initiatives. The company picked Asheesh Saksena, a former president of Best Buy Health, to fill the role.

The company is focusing on its online capabilities over the holidays, Chief Financial Officer Katrina O’Connell said in an interview. The company remains on track to close 225 Gap and Banana Republic stores this year, and it’s in the process of reducing its exposure to malls.

Gap shares declined 11% at 6:12 p.m. in late trading in New York on Tuesday.

While the company still isn’t providing longer-term guidance due to pandemic-related uncertainty, it sees fourth-quarter sales being equal or slightly higher than the same period last year. Operating expenses are seen at 33% to 34% of sales as it invests in advertising to increase its share of the apparel market and spends on measures to prevent the spread of Covid-19.

©2020 Bloomberg L.P.

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