Gap Inc. announced Thursday that total revenue was down 18% for the most recent quarter as e-commerce sales were up 95% year over year. However, those gains were offset by a 48% drop in sales during the coronavirus pandemic.
There was a net loss year over year as the lower sales combined with additional shipping costs for all of these online orders weighed on profit.
Looking ahead to the rest of the year, the company expects sales trends to improve from here, fueled by the Old Navy and Athleta banners. The weakness of the Banana Republic, known for its workwear for women, is expected to persist.
Shares rose nearly 1% in after-hours trading.
Here's how Gap performed in the second quarter of the fiscal year compared to analysts' expectations based on refinitive data:
Loss per share: 17 cents versus an expected loss of 41 cents. Revenue: $ 3.28 billion versus $ 2.91 billion expected
For the period ended August 1, Gap posted a loss of $ 62 million, or 17 cents per share, compared to net income of $ 168 million, or 44 cents per share, a year ago. That was better than analysts' forecast losses of 41 cents per share, based on a refinitive poll.
Revenue declined 18% to $ 3.28 billion from $ 4 billion a year ago, beating analysts' expectations of $ 2.91 million.
The retailer nearly doubled its e-commerce business in the quarter, managing director Sonia Syngal said as customers stocked up on simple t-shirts, training shorts and pajama sets. Online sales accounted for 50% of total sales.
Sales in the same store tracking sales online and in stores that have been open for at least 12 months increased 13% due to the strength of the online business. However, the 13% figure only relates to the days the gap stores were physically open during the quarter. Gap announced that it added 3.5 million new digital customers during the reporting period.
The company said it had $ 130 million in revenue in the second quarter from making face masks and selling them in bulk to both individuals and businesses.
Revenue for the Gap brand of the same name was down 28%, which consisted of a 75% increase on the internet and a 55% decrease in stores.
One of Gap's top performing brands, Old Navy, sales were down 5% overall, representing online growth of 136% and a decrease in stores of 36%. Gap said the Old Navy stores that are outside of the mall have performed better than others when they reopened, "and continue to be an asset".
Banana Republic sales were down 52%, representing a 26% jump online and a 71% decline in stores. This brand, which focuses on offering clothing for men and women that they can wear to work, has been at a disadvantage during the pandemic, Gap said. They say it is still working on moving the Banana Republic inventory to offer more casual fashion.
Within Athleta – Gaps women's sportswear brand that competes with Lululemon and Nike – sales grew 6%. This made Athleta the only division within Gap Inc. in which total sales increased. Athleta online sales increased 74% while in-store sales decreased 45%.
One way for a number of retailers, including Gap, to cut costs is to pay less rent and renegotiate leases with landlords during the pandemic. The largest US shopping mall owner, Simon Property Group, has sued Gap for non-payment of rent. Gap said Thursday it would continue to negotiate lease-by-lease with malls and malls owners. No specific discussions were held with Simon.
Meanwhile, Gap is expected to permanently close a number of its mall stores – 225 locations in Gap and Banana Republic worldwide – this year.
Gap ended the quarter with cash and cash equivalents of $ 2.2 billion on its balance sheet. The company is in "solid financial position to navigate the ongoing pandemic and continue to invest in its business".
The company recently secured an asset-based revolving credit facility of $ 1.87 billion, replacing its previous $ 500 million unsecured revolving credit facility that it has not yet borrowed from and to which it has no access to expected this fiscal year.
However, due to the uncertainty due to the global pandemic, the company does not currently offer any profit prospects for 2020.
At the close of trading on Thursday, Gap stocks were down less than 1% since the start of the year. It has a market cap of $ 6.5 billion.
The full press release on Gap's earnings can be found here.