Gap earnings fall brief, sales beat, as retailer ‘stays optimistic’ about the holidays

Gap Inc. shares fell Tuesday after the firm reported fiscal third-quarter earnings that fell in need of expectations, as larger spending on advertising offset sales positive aspects at Old Navy and Athleta, whereas the firm’s namesake and Banana Republic manufacturers reported double-digit declines.

Under CEO Sonia Syngal, the retailer has centered investments round new promoting to obviously outline every of its core manufacturers. The effort kicked off with latest holiday-themed commercials, in a bid to achieve market share in key classes like girls’s exercise attire and denim.

While the international well being disaster has made it troublesome for a lot of firms to supply a future outlook, Gap mentioned it “remains optimistic” about the future. It expects fourth-quarter sales to be about equal to or barely larger than a 12 months in the past. Analysts had been calling for a decline of two.8%.

“Fundamentally it seems like the consumer is relatively strong,” CFO Katrina O’Connell mentioned in an interview. “Because the consumer can’t spend on entertainment [and] travel, they’re looking for a place to spend their discretionary dollars. And we believe that they will be using those dollars to provide more compelling gifts to their families over the holiday season as a way to show their love and affection during these tough times.”

Shares fell greater than 8% in after-hours buying and selling, having risen greater than 51% by this 12 months.

Here’s how the retailer did throughout its fiscal third quarter, in contrast with what analysts had been anticipating, based mostly on Refinitiv knowledge:

• Earnings per share: 25 cents vs. 32 cents, anticipated
• Revenue: $3.99 billion vs. $3.82 billion, anticipated
• Same-store sales: Up 5% vs. a decline of 0.3%, anticipated by StreetAccount

Gap Inc.’s same-store sales throughout the newest quarter grew 5%, with Athleta reporting a file quarterly enhance. That got here in much better than the 0.3% decline that analysts had been anticipating.

The firm continues to be working to show round its Gap and Banana Republic divisions, nevertheless, and has named a brand new chief, who has expertise with client items, to guide the latter.

Gap additionally on Tuesday named Asheesh Saksena, most just lately president of Best Buy‘s well being division, to a newly created place of chief development officer, efficient in January.

For the quarter ended Oct. 31, Gap earned $95 million, or 25 cents per share, in contrast with $140 million, or 37 cents a share, a 12 months earlier. That got here in in need of expectations for earnings of 32 cents per share.

Sales for the interval had been about flat with the prior 12 months at $3.99 billion, and outpaced expectations for $3.82 billion.

The 5% acquire in same-store sales, which observe sales on-line and at shops open for at the least 12 months, had been boosted largely by the firm’s digital enterprise, which surged 61% and accounted for 40% of whole sales throughout the quarter. Gap mentioned it added extra then 3.four million new prospects on-line. And it reiterated plans to derive half of its sales from the net by 2023.

Gap mentioned it additionally noticed a 56% enhance in web sales quantity from a 12 months in the past for orders delivered to prospects by both curbside pickup or its purchase on-line, decide up in retailer providing. Many firms have been touting and pushing these choices throughout the pandemic, as a solution to nonetheless make the most of their shops, reduce on delivery bills and restrict contact with shoppers.

Within Old Navy, web sales elevated 15%, and same-store sales had been up 17%. The firm mentioned it supplied 55% extra activewear beneath the Old Navy model throughout the quarter, to satisfy the wants of shoppers searching for snug clothes as they spend extra time at dwelling.

At Gap’s namesake banner, web sales fell 14%, and same-store sales dropped 5%. The firm attributed the declines, partly, to retailer closures that passed off throughout the quarter.

Gap Inc. has beforehand mentioned it expects to shut roughly 30% of its Gap and Banana Republic shops in North America by the finish of fiscal 2023.

At Banana Republic, a model recognized for its work attire, web sales fell 34%, and same-store sales dropped 30%. The firm mentioned it has been attempting so as to add extra informal apparel to this model, to satisfy the preferences of ladies working at dwelling throughout the pandemic. On Tuesday, Gap named former Williams-Sonoma and RH govt Sandra Stangl as the new president and CEO of Banana Republic, efficient subsequent month, as a part of its bid to revive the model.

“The team has been heads down, focused on changing the [Banana Republic] assortment to be more loungewear, more activewear, more comfortable clothing. But it takes a while to shift the assortment,” O’Connell mentioned.

Within Athleta, Gap’s model for ladies’s exercise garments, web sales had been up 35%, as same-store sales surged 37%, the highest ever recorded in the model’s historical past. The firm additionally cited its masks enterprise, sparked by the pandemic, as a contributing issue to attracting new prospects to Athleta.

Gap has a market cap of $10 billion.

Read the full press launch from Gap right here.