Gap Inc. reports fourth quarter net loss of $16 million

Gap Inc. said fourth-quarter net sales fell 3% to $4.5 billion from 2019 due to store closures and divestitures.

In a word: Gap Inc., with a billion-dollar portfolio of lifestyle brands including Old Navy, Gap, Banana Republic and Athleta, said Thursday fiscal 2022 revenue growth is expected to be in the low single digits. compared to fiscal 2021, with first quarter net sales expected to be down mid to high single digits from the first quarter of 2021.

The company has forecast diluted earnings per share (EPS) of between $1.95 and $2.15. Excluding an expected net profit from international initiatives, the company expects its adjusted diluted EPS to be between $1.85 and $2.05. Gap inc.

The company expects an operating margin of 6.3% to 6.8%. Inventory at the end of the first quarter is expected to increase approximately 20% from the first quarter of fiscal 2021 due to early booking to compensate for longer transit times.

Fiscal 2021 closing inventory increased 23% year-over-year, with about 15% of the growth due to longer transit times. The remaining increase is due to higher average unit cost resulting from airline spend the company expects to sell in the first half of fiscal 2022 and product line shifts to higher cost items.

The company expects capital expenditures of approximately $700 million in fiscal 2022. Capital expenditures are expected to primarily support growth investments including digital, loyalty and supply chain capacity projects , as well as investments in store growth for Old Navy and Athleta.

Gap Inc. plans to open approximately 30-40 stores each for Old Navy and Athleta in fiscal 2022. Additionally, as part of its 350-store closure plan, it plans to close approximately 50-60 stores Gap and Banana Republic in North America during the year.

“As we move into 2022, we are focused on creating shareholder value through our business model, made possible by the progress we have made against our strategy by repositioning unprofitable areas of the business and strengthening brand relevance,” said Katrina O’Connell, executive vice president and chief financial officer of Gap Inc. “Our primary focus is the long-term health of the business and achieving profitable growth year after year. We are clear on our priorities for 2022 and we are strongly focused on achieving increased operational efficiency and, most importantly, driving sustainable and profitable growth.

The company ended the year with $900 million in cash and cash equivalents and 3,399 stores in over 40 countries, 2,835 of which were company-operated.

Sales: Net sales for the fourth quarter ended Jan. 29 were down 3% to $4.5 billion from 2019. The company said due to the significant impact of Covid-19 on sales figures previous year, the financial comparisons were made mainly to the same period of the 2019 financial year.

Permanent strategic store closures and divestitures reduced net sales by approximately 9% compared to 2019. Online sales increased by 44% compared to the fourth quarter of 2019 and represented 43% of total activity. Fourth quarter comparable sales increased 3% from 2019 and year over year.

Old Navy net sales in the period were reduced in part due to supply chain impacts, up 2% from 2019, with same-store sales flat from two years earlier .

Gap’s net sales were down 13% from 2019, with permanent store closures contributing about 17 percentage points of the decline. Global comparable sales increased 3%, with comparable sales in North America increasing 12% compared to the fourth quarter of 2019.

Banana Republic’s fourth-quarter net sales were down 11% from 2019, with permanent store closures contributing about 10% of the decline. Comparable sales were down 2% compared to the 2019 period.

Athletica’s net sales in the quarter fell 52% from 2019, with comparable sales up 42%.

For the year, net sales increased 2% to $16.7 billion from 2019. Permanent strategic store closures and divestitures reduced net sales by approximately 7% from 2019. online sales increased by 57% compared to 2019 and accounted for 39% of total net sales.

Comparable sales for the year were up 8% from 2019 and 6% year-over-year. The comparable sales calculation reflects online sales and comparable selling days in stores that were open.

Old Navy crossed $9 billion in net sales during the year, up 14% from 2019, with comparable sales up 12% over the same period.

Gap’s net sales were down 12% in the year compared to 2019, as permanent store closures reduced sales by approximately 15%. Global comparable sales increased 2%, with comparable sales in North America increasing 12% compared to 2019.

Banana Republic’s net sales in 2021 fell 18% from 2019, with permanent store closures reducing sales by approximately 10%. Comparable sales were down 9% compared to 2019.

Athleta’s net sales increased 48% in the year compared to 2019, with comparable sales up 39% in the same comparison.

Earnings: The company reported a net loss of $16 million in the quarter, compared to net income of $234 million a year earlier and a loss of $184 million in fiscal 2019.

The company’s diluted loss per share for the fourth quarter was 4 cents. Excluding charges related to strategic changes in the company’s European operations, fourth-quarter adjusted diluted loss per share was 2 cents.

Gross margin was 33.7% in the quarter, 260 basis points lower than 2019 adjusted gross margin, due to commodity margins down 500 basis points from 2019 due to nearly 600 basis points of estimated airfreight costs which were partially offset by higher average unit sales thanks to a lower discount.

For the year, net income was $256 million, compared to a net loss of $665 million in fiscal 2020 and net income of $351 million in 2019.

Diluted EPS was 67 cents for the year. Excluding charges associated with the restructuring of the company’s long-term debt, as well as charges related to divestment activity and strategic changes in the company’s European operations, adjusted diluted EPS was $1.44.

Gross margin of 39.8% improved 220 basis points from 2019, driven by merchandise margins down 100 basis points from 2019 as average unit sales growth was offset by about 240 basis points of air freight spending.

Opinion of the CEO: Sonia Syngal, CEO of Gap Inc., said: “After two years of restructuring, including the divestiture of small non-strategic brands, the transition of our European market to an asset-light partnership model and the removal of underperforming North American stores, our core business is strong and we are poised for balanced growth across our four $4 billion lifestyle brands. As our teams navigate the short-term disruption caused by the acute headwinds that stifled our performance in the fourth quarter, we are confident in our ability to execute on our long-term strategy, capitalizing on our investments in generating the demand, customer retention and artificial intelligence to accelerate profitable growth.

Ann J. Cox