Gap Profits Fall 32.1 Percent on Flat Sales

Gap Inc.’s profits fell in the third quarter — and more than Wall Street anticipated — but the company achieved a certain balance in sales as e-commerce helped offset store closures. 

The company also tapped Sandra Stangl as president and chief executive officer of Banana Republic and named Asheesh Saksena to the newly created corporate post of chief growth officer. 

The broader story at the retailer, which also owns Old Navy and Athleta as well as its namesake brand, was one of digging back out of the pandemic while also preparing for the future. 

Third-quarter net income fell 32.1 percent to $95 million, or 25 cents a share, from $140 million, or 37 cents, a year earlier. 

The bottom line, however, fell 7 cents shy of the 32 cents analysts projected, pressuring Gap shares, which fell 9.7 percent to $24.22 in after-hours trading. 

Sales for the three months ended Oct. 31 were flat at $4 billion, with the decline from store closures offset by 5 percent comparable sales growth and a 61 percent boost in online sales. (Gap expects sales for the rest of the year to be “equal to or slightly higher than last year.”)

“Our third-quarter results reflect our Power Plan 2023 in action — specifically the strength of our online business, which comprised 40 percent of sales, and our commitment to meeting the shopping preferences of our customers through our leading omni platform,” said Sonia Syngal, who became ceo of Gap in March. “With our teams focused on sales growth and returning to profitability, we’ve made investments in demand generation that are driving engagement, particularly in this dislocated market as customers are looking to trusted brands to provide easy and safe shopping options.”

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The retailer ended the third quarter with a $2.6 billion stockpile of cash, cash equivalents and short-term investments — a cushion that expanded from $1.1 billion a year ago, when COVID-19 closures were nowhere on the radar. 

Katrina O’Connell, chief financial officer, noted, “Importantly, our strong cash flow continues to provide us ample liquidity to invest in marketing support behind our brands, as well as digital capabilities to drive our rapidly growing online business.”

Athleta led the portfolio, with sales up 35 percent, followed by the much larger Old Navy, which increased 17 percent. 

Sales for the Gap division fell 14 percent and the long-struggling Banana Republic was down 34 percent. 

But starting next month, the Banana Republic business is getting a fresh set of eyes on it with Stangl joining.

Stangl spent 23 years at Williams Sonoma, where she rose to the position of president, Pottery Barn Brands and launched Pottery Barn Kids and Pottery Barn Teen. Stangl also served as president, chief merchandising and new business development officer for Restoration Hardware.

As chief growth officer, the company said Saksena “will assess value creation opportunities to ensure consistent growth across the company.” He starts in January and was most recently president of Best Buy Health, where he oversaw the brand’s strategic diversification into digital health.

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