Daily Management Review

Return Of Summer Shoppers Prompts Gap To Raise Forecast


The easing of pandemic induced restrictions has allowed greater opportunities for socializing which is expected to increase demand for Old Navy and Athleta clothing brands of Gap Inc, prompting the company to raise its net sale forecast for the entire year for the second time this week. 
Its annual profit estimate was also raised by San Francisco-based Gap, which infused confidence of investors and pushed the share price of the company up by 7 per cent. Both the raised forecasts by the company also beat estimates of analysts in a strong earnings season for retailers such as Macy's, Kohl's and discounter T.J. Maxx.
"Our customers embraced summer with optimism, hungry for mood-boosting clothing as vacations and reunions became a reality," Gap Chief Executive Officer Sonia Syngal said on an earnings call.
During the second quarter, there was a 21 per cent surge in the net sales of Old Navy compared to sale levels from two years ago prior to the pandemic hit last year. Sale of Athleta branded products increased by 35 per cent for the same period compared to pre-pandemic levels.
The retailer also significantly benefited from its tie-up with rapper Kanye West as completely new customers made up at least 75 per cent of pre-orders for the Yeezy-Gap jacket.
In order to benefit from the surge in its online business, more investments in its digital business are being made by the owner of the Banana Republic brand. Drapr, a startup that lets customers try on clothes virtually, had been acquired by it, Gap said prior to announcing its earnings.
The company now expects its net sales growth for fiscal 2021 to be about 30 per cent while it had previously forecast the growth in this metric to be in the low-to-mid 20 per cent range. Analysts expected the company to forecast a 24.3 per cent growth, according to Refinitiv data.
A forecast of annual adjusted profit of between $2.10 and $2.25 per share is now expected by it compared to its previous forecast of it being between $1.60 and $1.75, said the company which has also been significantly focused on marketing and inclusivity. Analysts had expected the number to be at $1.80.
The net sale of the company for the second quarter was at $4.2 billion which was the second highest quarterly sales for the company in more than a decade. That was a 29 per cent growth year in year and comfortably beast estimates of analysts. 
However, to address the issue of delayed inventory deliveries because of shipping congestions and factory closures because of a resurgence of Covid-19 outbreaks in countries it sources from, the company is now investing in air freight, Gap said. Similar issues were also reported by rival Abercrombie & Fitch