Gap Inc., impacted by supply chain issues, higher freight costs and ongoing declines at the Gap and Banana Republic brands, incurred a loss of $16 million, or $0.04 a share, in its fourth quarter but took a big swing into profitability for the year overall.
There were also charges related to winding down its European business, but excluding those, the fourth-quarter adjusted diluted loss per share was $0.02.
In the fourth quarter a year ago, Gap Inc. reported a profit of $234 million, or $0.62 a share.
Net sales for the latest quarter increased 2 percent to $4.53 billion, from $4.42 billion in the year-ago period, and declined 3 percent from the fourth quarter in 2019. Comparable sales last quarter rose 3 percent, and 3 percent compared to the 2019 quarter.
For the year, Gap Inc. had a profit of $256 million, or 67 cents a diluted share, versus a loss of $665 million, or $1.78 a share, in 2021. Adjusted earnings per share were $1.44 last year.
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Net sales reached $16.7 billion, a 21 percent gain over 2020, and a 2 percent gain compared to fiscal 2019. Comparable sales rose 6 percent year-over-year and 8 percent over 2019.
Gap Inc.’s share price shot up over 9 percent in after-market trading, as of 6:20 p.m. Thursday, based on its outlook for low, single-digit digit sales gains in 2022 despite what’s seen as a mid-to-high-single-digit sales decline in the first quarter of this year, and Wall Street having expected a higher fourth-quarter loss than what was reported.
“After two years of restructuring, including divesting smaller non-strategic brands, transitioning our European market to an asset-light partnership model and shedding underperforming North American stores, our core business is strong and we are poised for balanced growth across our $4 billion lifestyle brands,” said Sonia Syngal, chief executive officer, Gap Inc., on Thursday.
“As our teams address near-term disruption from the acute headwinds that muted our fourth-quarter performance, we are confident in our ability to execute against our long-term strategy, capitalizing on our investments in demand-generation, customer loyalty and artificial intelligence to accelerate profitable growth.”
The retailer experienced eight- to 10-week delays in seasonal categories, but for spring and summer 2022 accelerated booking deadlines, using more ports around the country to limit exposure to West Coast bottlenecks and increasing sourcing out of Mexico for quicker deliveries.
Gap Inc. is also reducing split shipments to homes, automating returns so products can be resold quicker, leaning into higher average unit retail products, particularly at Banana, and enhancing personalization efforts.
However, executives warned of potential heightened promotional activity this year and headwinds associated with lapping last year’s government stimulus checks, “moderate” product delays in the first quarter, though deliveries should be more on time beginning in the summer.
The company indicated that store closures and divestitures reduced net sales by about 9 percentage points last quarter versus 2019, and by 7 percent versus 2019. The company’s multiyear program of closing Gap and Banana Republic stores in North America — 350 in total by January 2024 — is 70 percent complete.
Online sales grew 44 percent compared to the fourth quarter of 2019 and represented 43 percent of the total business. In 2021, online sales grew 57 percent versus 2019 and represented 39 percent of total sales.
By division, Old Navy’s fourth-quarter sales were muted partly due to supply chain impacts, but were up 2 percent versus 2019 with comparable sales flat versus 2019. For the year, the brand crossed $9 billion in net sales and rose 14 percent compared to 2019 with comparable sales up 12 percent versus 2019.
Gap brand’s fourth-quarter net sales declined 13 percent versus 2019, with permanent store closures contributing an estimated 17 percentage points of decline. Global comparable sales increased 3 percent with North America comparable sales up 12 percent versus the fourth quarter of 2019. Fiscal year 2021 net sales were down 12 percent compared to fiscal year 2019, with permanent store closures reducing sales by an estimated 15 percentage points. Global comparable sales for fiscal year 2021 were up 2 percent with North America comparable sales up 12 percent versus 2019.
“Building on its base of a healthier core and right-sized fleet, Gap is set to scale the strong partnerships it established in 2021, from Gap Home with Walmart and Yeezy Gap to its joint venture with Next in Europe, to further extend the brand’s reach and relevancy around the globe,” the company said in its report.
Banana’s fourth-quarter net sales declined 11 percent versus 2019, with store closures contributing an estimated 10 points of the decline. Comparable sales were down 2 percent versus the fourth quarter of 2019. Fiscal-year 2021 net sales were down 18 percent compared to 2019, with permanent store closures reducing sales by an estimated 10 points. Comparable sales for 2021 were down 9 percent versus 2019.
As reported, Banana Republic is adding BR Baby and BR Athletics to its mix this month, as part of what Sandra Stangl, the brand’s president and CEO, told WWD was the new vision for the business. “We really are aiming to become an iconic lifestyle brand, with both of these launches. Inclusivity is part of it,” she said.
On Thursday, the company said Banana’s “new premium positioning” has resulted in AUR growth, higher basket size, and more higher-income shoppers.
Athleta, Gap Inc.’s fastest-growing brand, saw fourth-quarter net sales up 52 percent versus 2019 with comparable sales up 42 percent versus the fourth quarter of 2019. Fiscal-year 2021 net sales were up 48 percent compared to fiscal-year 2019, with comparable sales up 39 percent versus 2019. Athleta is on track to hit $2 billion in net sales by fiscal-year 2023, led by its digital strength and capabilities, including its growth in the wellness space six months into the launch of AthletaWell, the company said.
For fiscal-year 2022, the company expects its reported diluted EPS to be in the range of $1.95 to $2.15. Excluding a net benefit expected from international initiatives, the company expects its adjusted diluted EPS to be in the range of $1.85 to $2.05.
The company ended 2021 with 3,399 store locations in more than 40 countries, 2,835 company-operated.
