Sales of Gap khaki pants rose 33% in January from 2019 as shoppers dress to go out again

Gap Inc.’s basics are back in style now as shoppers once again head out into the world.

The company said sales of the eponymous brand’s modern khaki pants rose 33% in January compared to 2019. And at Banana Republic, which has undergone a shift in high-end positioning, women’s blazers, in particular those with surprising colors, did better than expected.

“With customers reverting to pre-COVID shopping behaviors, we are shifting towards more versatile fashion, offering on-trend products in a range of wear occasions while playing on our market leadership in denim, apparel and more. ‘active and children and babies,’ said the general manager. Sonia Syngal during the results call, according to a FactSet transcript.

Gap GPS,
the range also includes Old Navy and Athletica.

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

“I am particularly pleased with the partnerships we have 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 increasing traffic to Athleta stores and digital channels.

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

Gap experienced delays of eight to 10 weeks in seasonal categories due to supply chain delays and shutdowns in Vietnam due to the pandemic. Coupled with air freight spending to meet the challenges, the company’s sales and profits were squeezed.

Orders for some of the spring 2022 merchandise and summer items were thus pulled up. The company is diversifying its sources of supply, with an eye on Mexico and Central America in 2022. And there have been 250 store closures, with 70% of the North American store fleet rationalization completed.

“While the first quarter will have moderate product delays that required airfreight, as a result of the above actions, our summer and future deliveries are expected to be more on-time and require only modest and more standardized airlift,” said said Syngal.

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The company’s actions inspire cautious hope among analysts.

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

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

Wells Fargo notes the overweight in Gap shares with a price target of $25.

“[S]like others, the burden of proof is now on Gap to achieve this guidance, especially in light of a history of volatility and difficult tip conversion,” BMO Capital Markets wrote.

“With no signs to the contrary, we remain cautious that the climb will prove as easy as guidance may suggest.”

BMO rates the performance of the Gap stock market with a price target of $16, down from $19 previously.

Gap expects adjusted earnings per share for fiscal 2022 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 growth of 1.4%.

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Even the partnerships the company touts could become a problem.

“The danger here is that Gap is simply marketing its heritage and history rather than figuring out how the brand can stay relevant,” GlobalData wrote.

“Yeezy is a prime example of that because it’s both genius and completely naive business. The genius is that it has accelerated Gap’s sales and sparked real interest in the stilted brand. The naivety comes from the fact that the driver’s seat is occupied by Ye (Kanye West) rather than Gap management.

Gap stock has fallen nearly 45% over the past year while the S&P 500 SPX,
gained 14%.

Sallie R. Loera