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Gap swings to Q4 profit buoyed by Old Navy, Athleta; optimistic on 2021

Gap store

Gap Inc. reported disappointing fourth-quarter sales amid global store closures and ongoing declines at its namesake and Banana Republic brands.

The apparel retailer predicted a return sales growth in 2021, with net sales in the mid- to high-teens percentage compared with 2020, with earnings  in the range of $1.20 to $1.35 per share. Gap noted, however, that it expects inventory levels to be elevated into the second quarter as a result of higher in-transit inventory due to COVID-related U.S. port congestion and the impact on shipping timelines.

In a statement, CEO Sonia Synga said the company was focused on “delivering profitable growth in 2021. Gap also said it plans to open 30 to 40 Old Navy stores and 20 to 30 Athleta stores this year as it continues to downsize its Gap and Banana Republic footprint, with plans to close about 100 stores globally. The retailer ended the year with 3,715 stores in 45 countries, of which 3,100 were company operated, compared to 3,345 company-operated stores at the end of last year.

Gap posted net income of $234 million, or $0.61 a share, in the quarter ended Jan. 30, compared with a loss of $184 million, or $0.49 cents a share, in the year-ago period. Gap said its earnings included 45 cents a share for non-recurring tax benefits and 12 cents a share in impairment charges related to its Intermix business.

Net sales fell to $4.42 billion from $4.67 billion, missing estimates of $4.66 billion. By brand, net sales rose 5% at Old Navy and 29% at Athleta and fell 19% at Gap and 27% at Banana Republic. Total online sales rose 49%, accounting for 46% of net sales during the quarter.

Same-store sales increased 7% at Old Navy and 26% at Athleta, and decreased 6% at Gap and 22% at Banana Republic.

For the full year, Gap reported $13.8 billion in sales, down from $16.38 billion in 2019. The company lost $665 million in 2020, or $1.78 a share, compared with net income of $351 million, or $0.93 a share.

“We faced one of the most difficult years in our company’s history and, throughout, our teams showed resilience and determination as we navigated unprecedented disruption in our industry to set a course for long-term growth,” stated CEO Sonia Syngal. “Our powerful brands moved to offense with purpose-led marketing and strength in relevant categories, like active and fleece, allowing us to gain meaningful market share quarter-over-quarter in a fragmented environment. This was enabled by our $6 billion online business and advantaged digital capabilities allowing us to expand our reach to more than 183 million customers this year.”

Gap said it ended its fiscal year  with $2.4 billion in cash, cash equivalents, and short-term investments, compared to $1.7 billion at the end of fiscal year 2019, providing sufficient liquidity to address remaining challenges from the COVID pandemic, support the company’s long-term growth strategy, and return cash to shareholders.

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