Gap Inc. managed to successfully navigate COVID-19 in the fourth quarter, driving profits despite a 5.3 percent drop in sales — it just wasn’t enough to save the year from steep losses.
But even with the retailer projecting a “return to a more normalized, pre-pandemic level of net sales in the second half of 2021,” changes are already sweeping through its business and are going to continue.
The company put its smaller Intermix business under strategic review and is also re-evaluating its operations in Europe, exploring licensing deals and plans to continue to close stores. A total of 228 Gap and Banana Republic stores were shuttered last year and the firm remains on target to close 350 stores under the banners by the end of 2023.
And Kayne West’s Yeezy line is set to launch in Gap stores in the second quarter, adding a new element and a bit more cultural heat to the struggling chain.
All together that is more proof that once the pandemic is over, Gap and the rest of the industry will be moving forward to something new rather than trying to set the clock back to 2019.
“COVID-19 presented the biggest crisis our company or industry has ever faced,” Sonia Syngal, who took the helm of retail giant as chief executive officer a year ago, told analysts on conference call. “And alongside our employees, our customers, our communities and the rest of the world we faced challenges that defined a new path for every one of us.
“It’s also true that every crisis is an opportunity, and this one met Gap at a crucial pivot point,” she said. “We use this opportunity to lead with our competitive advantages. While embracing the values this company was founded on to emerge in a place of strength and with a clear path forward.”
Syngal said the company grew its known customer file by 14 percent last year to more than 183 million while also making it easier to shop with buy online, pick up in store options, curbside pickup and new payment methods, such as the Afterpay installment service.
Investors taking it in were feeling more bullish, trading shares of the company up 4.9 percent to $26.61 in afterhours trading.
Gap’s fourth-quarter net earnings tallied $234 million, or 61 cents a diluted share, boosted on a per-share basis by a 45 cent nonrecurring tax benefit. The tax boost was partially offset by a 12 cent, or $56 million, impairment change tied to the Intermix trade name and store and operating assets.
Gap’s sales for the three months ended Jan. 30 slipped to $4.4 billion, with flat comparable sales and a 49 percent increase in the e-commerce business.
Sales at the firm’s Old Navy business rose 5 percent, but the namesake Gap business was down 19 percent and Banana Republic was off 27 percent. Athleta proved to be the company’s fastest-growing business, expanding 29 percent in the quarter to top $1 billion sales for the full year.
Specifically on Gap, Syngal said, was attracting new customers, seeing an “incredible opportunity” with Yeezy and gaining momentum.
“Lots of levers to drive the momentum at Gap, while dealing with the structural issues that have plagued the brand,” she said. “And you know what makes me the happiest honestly is to see the fact that the brand is trending with the younger customers, it’s trending on Facebook. The new spring launch is incredibly relevant and we’re seeing massive impressions, you know, whether it was [the viral appeal of journalist Steve] Kornacki’s khakis during the election, or what we’re seeing today, the brand is back.”
For the year, the company posted losses of $665 million, compared with earnings of $351 million in 2019, on a sales decline of 15.8 percent to $13.8 billion.
This year, Gap is looking for sales to grow by a percentage in the mid- to high-teens
The company cited NPD Group data that indicated that its market share by 0.2 percent points for the year to account for 5.5 percent of total U.S. apparel sales. Since Gap’s sales fell last year, that indicates that the company is getting a proportionally bigger piece of a smaller pie.
Increasingly, that’s a market share battle happening online.
“We are becoming digitally dominant,” chief financial officer Katrina O’Connell noted: “Our online business grew 54 percent in 2020 and closed the year at about 45 percent of total company sales, up from 25 percent at the end of last year, at over $6 billion. Our online channel is ranked number two in U.S. apparel e commerce sales.”
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