The Gap Reports Declining Sales and Net Losses in Q1 2021

Gross Margins Improve Despite Declining Sales

The apparel retailer Gap, which includes brands such as its namesake Gap, Old Navy, Banana Republic, and Athleta, reported declining revenue in the fiscal first quarter of 2021. The company’s sales dropped by 6% year-over-year to a total of $3.28 billion, down from $3.48 billion in the previous year. Comparable sales were down 3%, and online sales (which represented 37% of total net sales) dropped by 9% YoY. Despite these struggles, the company reported improved gross margins in Q1. Gross margins increased by 5.6 percentage points to 37.1%, partly due to lower air freight expenses and reduced air freight expenses.

Gap Making Progress Despite Challenges

The company, which has been without a CEO for nearly a year, has been undergoing significant restructuring efforts to improve profitability and better understand its customers. In the most recent quarter, the company reported a loss of $18 million, or 5 cents per share, compared with a loss of $162 million, or 44 cents a share, in the year ago period. On an adjusted basis, the company reported earnings of $3 million, or 1 cent per share, in the period. In addition to cost-cutting measures and a reduction in management layers, Gap has been conducting research to better understand its consumers so it can deliver products they want, regain market share, and reverse sales slumps.

Brand Performance

Gap’s brands performed differently in the first quarter of 2021. Old Navy, which accounts for the majority of Gap’s revenue, saw a net sales drop of 1% to $1.8 billion and a 1% decrease in comparable sales. Gap reported $692 million in sales, a 13% drop year over year, but a 1% increase in comparable sales. Banana Republic’s sales were down 10% YoY, at $432 million, and comparable sales were down 8%. Athleta, which is still struggling to meet consumer demands, saw net sales of $321 million, an 11% drop YoY, and comparable sales were down 13%.

Future Outlook

Gap’s full-year outlook remained largely unchanged, with the company expecting second quarter net sales to decrease in the mid to high-single digit range and full-year net sales to be down in the low to mid-single digit range. The company also expects gross margin to continue to rise and capital expenditures to come down to $500 million to $525 million, compared to a previous range of $500 million to $550 million. Fiscal 2023 will include a 53rd week, which is expected to boost sales by $150 million.