Gap posts highest Q2 net sales in 10-plus years

Gap Inc. reported second-quarter earnings that crushed Wall Street expectations and sales that topped $4 billion, led by its Old Navy and Athleta brands.

The apparel retailer released its results the same day it announced the acquisition of Drapr, an online startup that enables people to try on clothing virtually. 

“We plan to leverage Drapr to help Gap Inc. improve the fit experience for our customers and accelerate our ongoing digital transformation,” the retailer stated.

Gap’s net income rose to $258 million in the quarter ended July 31, from a loss of $62 million in the year-ago period, which was heavily impacted by the pandemic.

Net sales totaled $4.2 billion in the quarter, up 5% compared to the second quarter of 2019. It was the chain’s highest second-quarter sales in more than a decade.

Comparable sales rose 3% year-over-year and 12% versus 2019. (Due to the impact of COVID-related store closures last year, Gap said its financial comparisons for the quarter are being made primarily against 2019.)

The retailer said permanent store closures and the recent divestures of its Janie & Jack and Intermix businesses reduced its net sales by approximately 8% versus 2019. In addition, the company estimates that COVID-related closures in markets outside of the U.S. resulted in approximately 2% of sales decline versus 2019.

Online sales grew 65% versus the second quarter of 2019 and represented 33% of the total business for the quarter.

The company expects to open about 30 to 40 Old Navy and 20 to 30 Athleta stores in 2021. It also plans to close approximately 75 Gap and Banana Republic stores in North America.

Net sales and highlights by brand are below.

• Old Navy Global: Net sales rose 21% versus 2019. Comparable sales were flat to last year and up 18% versus 2019. A strong consumer response to the loyalty launch drove customer acquisition, propelling Old Navy's customer file to an all-time high in the quarter.

Earlier this month, Old Navy launched an inclusive sizing initiative, Bodyequality, which it said positions the brand as one of the largest retailers to address the full size-range within the $120 billion women's apparel market.

[Read More: Old Navy rolling out size-inclusive shopping experience — in stores and online]

Gap Global:Net sales declined 10% versus 2019, with permanent store closures resulting in an estimated 14% sales decline, and international COVID-closures driving an estimated 1% decline on a 2-year basis.

Global comparable sales declined 5% year-over-year and increased 3% versus 2019. In North America, comparable sales growth of 12% on a 2-year basis was led by strength in key categories, including sleep, active and fleece.  

During the quarter, Gap launched its partnership in the home category with Walmart.

• Banana Republic Global: Net sales declined 15% versus 2019, with permanent store closures resulting in an estimated 10% sales decline, and international COVID-closures driving an estimated 1% decline on a 2-year basis. Comparable sales were up 41% year-over-year and down 5% versus 2019. Both net sales and comparable sales reflected meaningful improvement from the first quarter of 2021, Gap said.

Moving into fall, Banana Republic will focus on bringing affordable luxury to consumers through an enhanced site and store experience.

Athleta: Net Sales were up 35% versus 2019. Comparable sales grew 13% year-over-year and 27% versus 2019.

The brand looks to build on the success of the second quarter with its launch of AthletaWellhttps://chainstoreage.com/athleta-turns-heat-rivals-new-wellness-platform-supports-biles, a digital wellness and fitness platform.

In addition, following next week’s launch of Athleta online in Canada, the brand will soon be opening stores in Toronto and Vancouver.

“Our strategy is driving growth as evidenced by continued strength at Old Navy and Athleta, Gap Brand’s second consecutive quarter of positive 2-year comparable sales in North America, and momentum gaining at Banana Republic, said Sonia Syngal, CEO, Gap Inc. “Stepped-up marketing investments, improved brand management, and technology enhancements are paying off as our brand power cuts through.”

The company raised its full year reported diluted earnings per share guidance to be in the range of $1.90 to $2.05, and $2.10 to $2.25 on an adjusted basis. It expects net sales growth for fiscal year 2021 to be about 30% versus 2020.

"Our strong second quarter performance, demand for our purpose-led, billion-dollar lifestyle brands, and ongoing strength of the customer gives us confidence to raise our sales and earnings outlook for the second consecutive quarter," said Katrina O’Connell, executive VP and CFO.

The company ended the second quarter of fiscal year 2021 with 3,494 store locations in over 40 countries, of which 2,937 were company operated.