Market

Retail Check Up: Gap

This past weekend, I walked by my local Gap
GPS
store, set to close at any moment once the last bit of inventory disappears out the front door, I’m guessing. I’ve written about Gap in the past, being partially wistful for that 90s magic it held, and also wondering if the company would rebound from its woes. But when I realized it’s been over a year since I checked in with this retailer, I knew it was time for a check-up, which is super timely since the dust has settled some since Gap reported fourth-quarter earnings in March.

At my last dispatch on the company in 2019, Gap had announced plans to focus on and strengthen Old Navy. The company unveiled plans to open 800 new stores in anticipation of growing Old Navy from $8 billion in sales to $10 billion per year. Gap had also announced plans to spin-off Old Navy, which would trade as its own entity. Gap later called off this move, citing the “cost and complexity” of the undertaking. In addition to its namesake and Old Navy, Gap also runs well-known labels, including Banana Republic, and its athleisure brand Athleta.  

Getting back to 2021, like many of its fellow retail competitors, the picture is different, and priorities have changed some for Gap. On March 4, Gap reported an EPS beat by a dime and a $234.45 million revenue miss. On the call, CFO Katrina O’Connell said Gap Brand had experienced “meaningful progress” despite a down quarter. “Gap North America delivered a 1% comp. This underscores the progress the brand is making in the product and operations of its core business,” said O’Connell. 

Of store closures, which includes the soon-to-shutter shop in my town, in October 2020, Gap announced intentions to close 350 of its Gap and Banana Republic stores in North America by the end of 2023. In the update on closures, O’Connell said, 

“In 2020, we closed 228 net Gap and Banana Republic stores globally ahead of our 225 store closure target. These [closures,] along with lease negotiations and rent abatement settlements, as well as higher online sales, contributed to over 400 basis points of ROD leverage in the fourth quarter. We are progressing on our goal of improving the profitability of Gap Brand as we partner to amplify through asset-light models.”

In response to the release, Michael Binetti & team at Credit Suisse
CS
praised Gap’s quarter, noting that the return to positive comps in North America was a good sign. But despite some positives, “we thought key growth drivers Old Navy & Athleta could have delivered better sales trends in a quarter that was otherwise solid for brands with good omnichannel capabilities,” wrote the team. “Importantly, we were still disheartened by marketing up $66m year-over-year in the quarter to drive flat comps.”

Noting that Gap reported better-than-expected results while Old Navy and Athleta kept up their momentum, Oliver Chen & team at Cowen added, “We expect momentum to continue as Gap improves assortment and its active and denim categories remain relevant; even in [a] COVID-19 environment.” 

Chen’s team also views Gap’s investments in distribution centers and marketing as potential positives for the company to drive customer engagement. “Gap’s new Old Navy distribution center in Texas will require up-front costs and added labor,” wrote the team. “But we expect localized inventory is the path to leveraging fixed fulfillment costs to improve e-commerce margins in the long-run.”

Lastly, Dana Telsey & team at Telsey Advisory Group noted the EPS beat and cautiously accentuated the positives for the future at Gap. “Longer term, reducing the Gap and Banana Republic store footprints in North America, paring back mall exposure, investing in digital expansion, and growing the Athleta and Old Navy businesses can all contribute to improved profitability. However, the fourth-quarter results are a continued reminder that significant challenges remain at the Gap and Banana Republic brands.”

Bottom Line: There is plenty of woe in the retail space, we know this, but consumers still have their favorites and their go-to brands. While the iconic blue square with white font on it might be disappearing from more storefronts (including in my town) Gap, Inc. still has enough juice and positives to keep customers and analysts interested. For now.

Most Related Links :
honestcolumnist Governmental News Finance News

Source link

Back to top button