Gap Inc (NYSE: GPS) stock lost over 17.5% on 25th November, 2020 (as of 9:55 am GMT-5; Source: Google finance) after the company posted lower than expected results for the third quarter of FY 20 as higher spending on marketing offset sales gains at Old Navy and Athleta, while the company’s namesake and Banana Republic brands reported double-digit declines. GPS in the third quarter of FY 20 has reported the adjusted earnings per share of 25 cents, missing the analysts’ estimates for the adjusted earnings per share of 32 cents, according to Refinitiv.
At Banana Republic, a brand known for its work apparel, net sales declined by 34%, and same-store sales fell 30%. The company has been trying to add more casual attire to this brand, to meet the preferences of women working at home during the pandemic.
Gap Inc.’s same-store sales during the third quarter grew 5%, with Athleta reporting a record quarterly increase. That came in far better than the 0.3% decline that analysts were expecting, as per StreetAccount. The company is still working to turn around its Gap and Banana Republic divisions, however, and has appointed a new chief Sandra Stangl as the new president and CEO of Banana Republic, who has experience with consumer goods, to lead the latter. The gain in same-store sales were boosted in large part by the company’s digital business, which rose 61% and accounted for 40% of total sales during the quarter. Gap has added more than 3.4 million new customers online. And it reiterated plans to derive half of its sales from the web by 2023. Gap’s net sales volume for orders delivered to customers through either curbside pickup or its buy online, pick up in store offering rose 56% from last year.
The company had reported the adjusted revenue to $3.99 billion in the third quarter of FY 20, beating the analysts’ estimates for revenue of $3.82 billion. Net sales were affected by the company’s ongoing strategy to close unprofitable stores. Gross margin expanded 160 basis points versus last year, to 40.6%.
Moreover, within Old Navy, net sales rose 15%, and same-store sales were up 17%. The company had offered 55% more activewear under the Old Navy brand during the third quarter, to meet the needs of customers looking for comfortable clothing as they spend more time at home.
The company expects fourth-quarter sales to be about equal to or slightly higher than a year ago. Analysts had been projecting for a decline of 2.8%.