Gap’s Sales Miss Estimates as Retail Recovery Proves Elusive

(Bloomberg) -- Gap Inc., which owns the Old Navy and Banana Republic brands, posted fourth-quarter sales that fell short of Wall Street's expectations, a sign that a year into the pandemic a recovery still has a way to go.

• Comparable sales were flat during the period ending Jan. 30, missing analysts' estimates of a 2% gain, according to Consensus Metrix. The same-store sales figure, a key indicator of retail performance, slipped 6% at its namesake brand and plunged 22% at Banana Republic, the company said Thursday in a statement.

Key Insights

• Chief Executive Officer Sonia Syngal said Gap Inc. has endured “one of the most difficult years in our company's history,” but it's on a path to recovery through a previously announced growth plan.
• Gap expects shopping trends to more closely resemble life before the pandemic in the second half of the year, with 2021 sales growing in the mid to high teens. The outlook assumes Covid impacts persist in the first half before “a return to a more normalized, pre-pandemic level of net sales in the second half of 2021.”
• Like other apparel retailers, Gap has seen a sharp increase in digital sales as consumers increasingly grow comfortable shopping online. Digital sales grew 49% from a year ago.
• One bright spot for the retailer was its Athleta activewear brand, which passed $1 billion in sales. The brand, which saw a 26% jump in comparable sales, has benefited from heavy demand for comfortable clothes as many people have worked from home during the pandemic. Athleta has extended its sizing offerings in an effort to broaden its appeal.
• Gap sees longer transit times for merchandise due to port congestion -- a problem that's plaguing much of the retail industry. Due to the delays, inventory in the second quarter is expected to be up in the high single digits. Gap clearly wants to loop investors in, since high levels of merchandise buildup can be seen as an unappealing assortment.

Market Reaction

• The shares were little changed in New York after regular trading. The stock rose 26% this year through Thursday's close.

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