- Third quarter comparable sales increased 5% and net sales were down 1% compared to 2019 pre-COVID levels
- Significant supply chain constraints in the quarter impacted both comparable sales and net sales
- Online sales for the quarter increased 48% compared to 2019
- Gross Margin of 42.1% for the quarter represented the highest third quarter rate in over ten years
The company is revising its full-year 2021 guidance as a result of ongoing supply chain disruption
Gap Inc., a portfolio of purpose-led, billion-dollar lifestyle brands including Old Navy, Gap, Banana Republic, and Athleta, and the largest specialty apparel company in the U.S., reported a third quarter fiscal year 2021 diluted loss per share of $0.40. Excluding fees associated with restructuring the company’s long-term debt and net charges related to strategic changes in its European operating model, adjusted diluted earnings per share were $0.27. Additional information regarding adjusted diluted earnings per share, which is a non-GAAP financial measure, is provided at the end of this press release along with a reconciliation of this measure from the most directly comparable GAAP financial measure.
“While we entered the third quarter with growing momentum, acute supply chain headwinds affected our ability to fully meet strong customer demand. Still, we made an intentional investment in building enduring customer loyalty with accelerated use of air freight to serve them this holiday, choosing long-term growth opportunity over near-term impact to profitability,” said Sonia Syngal, CEO, Gap Inc. “Current pressures have not distracted us from what matters: growing our billion-dollar brands, delighting our over 64 million customers with product and experiences that drive lifetime value and restructuring and digitizing our business with an eye on creating a better future, faster.”
Consistent with the company’s quarterly releases in the first half of this year, financial comparisons for the third quarter of fiscal year 2021 are being made primarily to 2019 due to unique comparisons to 2020 as a result of COVID-19. Financial results for the third quarter of fiscal 2020 and 2019 can be found in the tables at the end of this press release.
Third Quarter 2021 Net Sales Results
Global supply chain disruption, including COVID-related factory closures and continued port congestion, caused significant product delays in the third quarter. Meaningfully reduced inventory positions throughout the quarter negatively impacted sales as brands were unable to fully meet strong consumer demand. The company noted that while supply chain constraints continue, it is leveraging increased air freight and port diversification to navigate ongoing delivery challenges for holiday.
The company’s third quarter fiscal year 2021 net sales of $3.9 billion were down 1% compared to 2019 with supply chain disruption driving an estimated 8 percentage point negative impact due to constrained inventory. The company remains focused on digital dominance through investing in its ecommerce platform, strategically closing unprofitable stores and partnering to amplify in international markets. Online sales grew 48% compared to the third quarter of 2019 and represented 38% of the total business, even as store traffic continues to rebound. Investments in technology are driving an enhanced online experience as the company accelerates its digital strategy. Third quarter comparable sales were up 5% versus 2019. The comparable sales calculation reflects online sales and comparable sales days in stores that were open.
Net sales and comparable sales by global brand for the quarter were as follows:
Old Navy: Net sales were up 8% versus 2019. Comparable sales were down 9% year-over-year and increased 6% versus 2019. Sales in the quarter outpaced available inventory as the brand was disproportionately impacted by supply chain delays, particularly within the women’s assortment. Following the launch of BODEQUALITY, Old Navy’s extended-size customer file has doubled since last quarter, with 15% of extended-size customers being new to the brand. These customers are increasingly shopping for the family across multiple categories, driving an increase in average transaction value.
Gap: Net sales declined 10% versus 2019, with permanent store closures resulting in an estimated 18% net sales decline. Global comparable sales increased 7% year-over-year and increased 3% versus 2019. North America two-year comparable sales were positive for the third consecutive quarter, up 13% versus 2019, with net sales only 1% below 2019 levels despite nearly 190 store closures in the region since the third quarter of 2019. To date, Gap has entered into partnership agreements in the UK, Ireland, France, and Italy, which are expected to improve the profitability of its European business. The brand’s Partner to Amplify strategy continues to ignite relevance with the launch of the Yeezy Gap Hoodie delivering the most sales by an item in a single day in Gap.com history with 70% of customers being new to the brand. Additionally, the launch of a second Gap Home collection at Walmart.com has expanded its assortment to include furniture and rugs.
Banana Republic: Net sales declined 18% versus 2019, with permanent store closures resulting in an estimated 10% sales decline. Comparable sales increased 28% year-over-year and decreased 10% versus 2019. Following the brand’s relaunch in September, Banana Republic is focused on improving every touchpoint of the customer experience – including elevated high-quality product, differentiated omni experiences, and relevant marketing. Banana Republic was able to expand product margins in the quarter compared to both last year and 2019 through lower discount rates and higher selling prices.
Athleta: Net sales were up 48% versus 2019. Comparable sales increased 2% year-over-year and 41% versus 2019. As part of its plan to reach $2 billion in sales, Athleta continues to invest in new touchpoints to increase awareness and drive customer engagement. During the quarter, Athleta expanded its footprint by launching its Canadian online business at the end of August and opening its first company-operated Canadian store in Vancouver at the end of September, followed by its second store which opened in Toronto last week. The brand is laying the foundation for greater international expansion with franchise partnerships in Costa Rica and Europe. Last month, Athleta released its first item with Simone Biles, a limited-edition Girl’s hoodie, with a bigger collection planned for Spring 2022.