Gap Raises Earnings Guidance Amid Pandemic Recovery

(Bloomberg) -- Gap Inc. topped Wall Street’s expectations with its second-quarter results and increased guidance for the full year, highlighting the recovery for apparel retailers from the early-pandemic slowdown. 

• The San Francisco-based company now sees adjusted earnings per share of $2.10 and $2.25, with net sales up about 30% compared with last year, it said in a statement Thursday. The apparel maker in May had forecast adjusted earnings of $1.60 to $1.75 a share and revenue growth in the low-to-mid 20% range.
• Same-store sales, a key retail metric, rose 3% compared with the year-earlier quarter. That’s well below the 26.4% gain expected by analysts, according to data compiled by Bloomberg. The company said comparable sales increased 12% from 2019, which many retailers have used to compare the recent period with a pre-pandemic quarter.
• See more details.

Key Insights 

• Gap, which also owns Old Navy, Banana Republic and Athleta, is capitalizing on a nascent rebound in consumer spending after the pandemic hurt demand for many types of apparel. Chief Executive Officer Sonia Syngal said in the statement that the company’s strategy is “driving growth” and that other initiatives in the company’s 2023 growth plan should take hold in the second half of this year.
• Same-store sales for Athleta, Gap’s athleisure brand, were up 13% from last year and 27% compared with 2019. Athleta has been a bright spot for the company as comfortable clothes have benefited from office closures. The unit is trying to establish itself as a performance brand, and its celebrity endorsers Simone Biles and Allyson Felix both received significant coverage during the Olympics earlier this summer.
• Gap expects Old Navy, its largest unit, to be a $10 billion business by 2023. As a way to attract more shoppers, the brand earlier this month overhauled its plus-size strategy. It expanded its merchandise offerings, stopped charging consumers more for larger sizes and put plus-size attire in the same section of the store and online as all women’s clothes.
• The company’s overall online sales increased 65% compared with 2019, and now account for a third of the total business. Analysts will be keen to hear how Gap plans to hold on to the online customers as the pandemic wanes.
• Gap is rethinking its brick-and-mortar strategy even outside of the U.S. In June, Gap said it would close all of its stores in the U.K., while also offloading brick-and-mortar operations in France.

Market Reaction 

• The shares rose 7.4% as of 4:33 p.m. after regular trading in New York. Gap climbed 31% this year through Thursday’s close.

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• See Gap estimates.

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