New online customers help Gap to limit second-quarter sales drop

Online sales of the company nearly double from a year earlier

Gap tempered the pace of its sales decline in the second quarter by picking up e-commerce customers. Pawan Singh / The National

Gap tempered the pace of its sales decline in the second quarter, outpacing analysts’ estimates by picking up e-commerce customers.

Sales for the period, which ended August 1, fell 18 per cent from a year earlier to $3.3 billion (Dh12bn), higher than analysts’ projection of $2.9bn. The company, which owns the Old Navy and Banana Republic brands, increased comparable-store sales 13 per cent, but said this excludes days that stores were closed in the quarter. For that reason, the measure doesn’t line up directly with market estimates.

Online sales nearly doubled from a year earlier, mirroring gigantic gains at other US retailers. Chief executive Sonia Syngal doesn’t expect to keep that pace with most of its stores now reopened. But she said new capabilities, like adding payment platforms PayPal and Afterpay, will help maintain a business that generated half the company’s sales last quarter.

Booming online sales often mean a hit to margins because of increased shipping costs and this was the case for Gap last quarter. But the company said that negative impact would be reduced in the second half of the year, with less shipping from stores, which is more expensive. Shipping from stores was elevated earlier in the year because they didn’t have the inventory in online warehouses to meet demand.

Except for Banana Republic, Gap’s brands posted positive comparable-store sales for the days in the quarter that they were open. The company will also keep closing Banana Republic and Gap brand stores, with a 225 combined reduction this year.

Banana Republic in particular faces a challenging outlook, with many of the offices that its apparel are designed for closed during the pandemic. The chain, which represents less than 10 per cent of the company’s sales, can still be turned around, Ms Syngal said in an interview. The focus on suits and dresses in the first half of the year didn’t fit the work-from-home movement, and now the company is shifting the assortment to more casual wear.

As expected, Athleta was a bright spot. It was the only brand to report a net sales increase in the quarter, with a gain of 6 per cent. Work-at-home consumers are snapping up sportswear during the pandemic. This also backs up the premise that Athleta is being undervalued by investors.

The company also shifted some of its supply chain to make masks during the quarter and turned this into a $130 million business, accounting for about 4 per cent of total sales.