: Gap khaki pants sales were up 33% in January versus 2019 as shoppers get dressed to go out again

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Gap Inc. basics are back in style now that shoppers are heading out into the world once again.

The company said the sales of the namesake brand’s modern khaki pants were up 33% in January versus 2019. And at Banana Republic, which has undergone a premium positioning shift, women’s blazers, particularly those in surprising colors, did better than expected.

“With customers returning to pre-COVID purchasing behaviors, we are pivoting to a more versatile fashion, offering on-trend product across a range of use occasions while playing to our market leadership in denim, active and kids and baby,” said Chief Executive Sonia Syngal on the earnings call, according to a FactSet transcript.

Gap’s
GPS,
-2.25%

lineup also includes Old Navy and Athleta.

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Gap reported narrower-than-expected losses for the fourth quarter after hours on Thursday. The company has made a number of changes, not just in merchandise, to turn the company around.

“I’m particularly pleased with the partnerships we’ve launched such as Gap Home with Walmart and Yeezy Gap, Simone Biles and Alicia Keys at Athleta and NEXT joint venture in Europe,” Syngal said.

The company credits its partnership with Olympic gymnast Simone Biles with driving increased traffic to Athleta stores and digital channels.

“We expect these partnerships to drive brand awareness, attract new customers to our brands, enable asset-light category and market expansion and ultimately grow our revenue.”

Gap experienced eight-to-10 week delays in seasonal categories due to supply chain delays and shutdowns in Vietnam due to the pandemic. Coupled with spending on air freight to work around the challenges, company sales and profit were squeezed.

Orders for a part of the spring 2022 merchandise and summer items have been pulled up as a result. The company is diversifying where it sources items, with an eye towards Mexico and Central America in 2022. And there have been 250 store closures, with 70% of the North American store fleet rationalization complete.

“While Q1 will have moderate product delays that necessitated air freight, as a result of the aforementioned actions, our summer and go-forward deliveries are expected to be more on time and require only modest, more normalized air,” Syngal said.

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The steps the company is taking is inspiring some cautious hope among analysts.

“After a very disappointing 2H21, today’s release can finally reset the story and bring back the bulls,” wrote Wells Fargo. 

“While fundamentals are far from perfect, at current levels we see more risk than reward. Bigger picture, following a better than feared 4Q, the company has a major opportunity to transform into a compelling recovery story once again in 2022.”

Wells Fargo rates Gap stock overweight with a $25 price target.

“[S]imilar to others, the burden of proof is now on Gap to attain that guide, particularly in light of a history of volatility and challenging guidance conversion,” wrote BMO Capital Markets.

“Absent signs to the contrary, we remain wary that the path up will prove as easy as guidance may suggest.”

BMO rates Gap stock market perform with a $16 price target, down from $19.

Gap is guiding for fiscal 2022 adjusted earnings per share in the range of $1.85 to $2.05, and revenue growth in the low single digit range. The FactSet consensus is for EPS of $1.83 and revenue of $16.899 billion, implying 1.4% growth.

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Even the partnerships that the company touts could become a problem.

“The danger here is that Gap is simply trading on its heritage and history rather than looking ahead to how the brand can remain relevant,” wrote GlobalData.

“Yeezy is a prime example of this because it is a deal that is part genius and part completely naïve. The genius is that it has accelerated Gap’s sales and created real interest in the staid brand. The naiveté comes from the fact that the driver’s seat is occupied by Ye (Kanye West) rather than Gap’s management.”

Gap stock has slumped nearly 45% over the past year while the S&P 500 index
SPX,
-1.33%

has gained 14%.

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