Gap's sales fall 43% as retailer takes hit from coronavirus pandemic; shares dive

Key Points
  • Gap Inc.'s net sales fell to $2.11 billion from $3.71 billion a year ago, as it took a hit from the coronavirus pandemic. 
  • The apparel retailer said its overall e-commerce sales were up 13% year over year during the quarter. 
A view of Gap Clothing Store in Times Square in New York City USA during the coronavirus pandemic on May 9, 2020 in New York City.
John Nacion | NurPhoto | Getty Images

Gap Inc.'s first-quarter sales fell 43%, the clothing maker reported Thursday, as its stores were shut for much of the period due to the coronavirus pandemic. 

Chief Executive Sonia Syngal said in a statement that sales continued to decline into May, after the first quarter ended, but the retailer had online growth of more than 100% during the month. 

As of Thursday, more than 1,500 stores are back open for business in North America, Syngal said, which is about 55% of the company's base and is ahead of schedule. Gap is planning to have most of its stores reopened this month, she said. And reopened stores are averaging sales of about 70% their normal levels, with the Old Navy brand driving that rebound, the company said. 

However, 20 of Gap's stores have sustained "extensive damage" due to the looting that has broken out amid nationwide protests for the death of George Floyd, the CEO said during a post-earnings call with analysts. She said the company is working to get those locations back open as quickly, and safely, as possible. 

Gap shares were falling around 4.5% in after-hours trading on the news. 

Here's how the company did during its fiscal first quarter ended May 2: 

  • Loss per share: $2.51 
  • Revenue: $2.11 billion 

Gap reported a net loss of $932 million, or $2.51 per share, compared with a profit of $227 million, or 60 cents a share, a year ago. 

The loss included a $484 million writedown on store and operating lease assets, along with an inventory impairment charge of $235 million. 

Net sales fell to $2.11 billion from $3.71 billion a year ago. It said e-commerce sales were up 13% year over year during the quarter. 

The company did not break out its same-store sales due to the temporary store closures. 

Analysts were calling for Gap to lose 67 cents per share on revenue of $2.3 billion, according to Refinitiv data. However, it is difficult to compare reported earnings with analyst estimates for the quarter because of the impact of the pandemic. 

Sales for Gap's namesake brand were down 50%, while Old Navy sales were down 42%, Banana Republic sales fell 47%, and Athleta sales dropped 8%. 

Some of these brands fared much better online, however. Athleta, which sells workout gear such as leggings and sports bras for women, saw growth of 49% online, the company said. Old Navy, a value-oriented apparel brand for families, saw online sales rise 20%. Banana Republic's online business was down 2% during the quarter, while Gap's digital revenue dropped 5%. 

"Prior to the onset of the pandemic, Gap brand performance continued to be pressured by inconsistent execution of product and marketing messages," the company said. 

It also said it is working to make Banana Republic, typically an outlet for people to buy clothes to wear to the office, more relevant as more consumers are working from home. 

Gap ended the quarter with $2.2 billion in merchandise inventory, down about 1% from a year ago, it said. To offload seasonal merchandise, the company said it donated some inventory to charities and is packing and holding some goods for next year. 

It had $1.1 billion in cash, cash equivalents and short-term investments on hand, compared with $1.7 billion at the beginning of the quarter. 

The Covid-19 crisis forced Gap to close all of its stores, which hurt its ability to generate revenue. Without cash coming in the door, Gap stopped paying rent. The retailer is the largest non-anchor tenant in terms of the rent it pays to Simon Property Group, the biggest U.S. mall owner. And Simon is now suing Gap for not paying rent, according to a lawsuit filed this week. 

"We are inactive and ongoing negotiations with our landlords to work through this crisis together," Gap Chief Financial Officer Katrina O'Connell said Thursday. "We value these relationships and are committed to finding mutually agreeable solutions that will enable both of us to benefit from an aligned strategic plan." 

She went on to say that the company is in the midst of renegotiating leases, to find some longer-term rent relief, to have a more profitable base of stores. It also plans to close more stores, permanently. But it has not said exactly how many. 

Gap is not providing a 2020 financial outlook at this time. 

As of Thursday's market close, Gap shares are down more than 31this year. The company has a market cap of $4.5 billion. 

Find the full earnings press release from Gap here. 

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