Gap (GPS) reports Q4 2020 earnings, 2021 sales outlook

A man walks past a store on January 12, 2021 in New York City.

Angela Weiss | AFP | Getty Images

Gap Inc. on Thursday predicted a bounce back to sales growth in 2021, hopeful that customers will soon return to its stores and spend more money on apparel as they look to resume some social activities.

Its shares shot up more than 4% in after-hours trading.

The apparel maker reported fourth-quarter sales that came up short of estimates, as the ongoing coronavirus pandemic forced temporary store closures in Europe, parts of Asia and Canada. But it swung to a profit, thanks to its efforts to sell more merchandise at full price and progress it made shuttering underperforming stores.

It showed continued strength at its Old Navy and Athleta brands, which focus on basics and workout gear. But its namesake Gap brand and Banana Republic label reported another quarter of sales declines.

For the quarter ended Jan. 30, Gap reported net income of $234 million, or 61 cents per share, compared with a loss of $184 million, or 49 cents per share, a year earlier.

Earnings in the latest period included a tax gain of roughly 45 cents per share and an impairment charge of roughly 12 cents per share related to Gap’s Intermix business. Analysts had been calling for earnings of 18 cents per share, according to a survey by Refinitiv. It wasn’t immediately clear if analysts had factored in the impact of these items.

Net sales fell about 5% to $4.42 billion from $4.67 billion a year earlier. That was short of analysts’ estimates of $4.66 billion.

Same-store sales for Gap’s athletic apparel brand Athleta grew 26% year over year, and they were up 7% at Old Navy. Gap’s namesake brand, however, booked a 6% same-store sales decline, and Banana Republic said that metric fell 22%. Same-store sales are a key metric for retailers that track performance online and at stores open for at least a year.

Gap said its overall online sales were up 49%, representing 46% of net sales during the quarter.

For fiscal 2021, the company is calling for net sales to be up a mid- to high-teens percentage compared with 2020. That’s assuming Covid-related impacts continue in the first half of 2021, and the retailer returns to a more normalized, pre-pandemic level of sales in the second half of the year, the company said.

Analysts had been calling for year-over-year revenue growth of 14.1%, according to Refinitiv.

Gap is forecasting earnings to be in the range of $1.20 to $1.35 per share. Analysts had been anticipating earnings of $1.28 per share.

One constraint, however, continues to be backlogged U.S. ports that are causing inventory to be stuck in transit for longer periods of time. Gap said the port congestion is expected to continue through the first half of the year. Therefore, it expects inventory levels to remain elevated into the second quarter, up high single digits compared with a year earlier.

Gap said it plans to open 30 to 40 Old Navy stores along with 20 to 30 Athleta stores this year and it will close about 100 Gap and Banana Republic stores globally.

Gap shares are up about 75% over the past 12 months. The company has a market cap of $9.46 billion.

Find the full press release from Gap here.

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