Gap, Inc. reported fourth-quarter net sales at Athleta jumped 52 percent versus 2019 with comparable sales up 42 percent versus the fourth quarter of 2019.

Fiscal year 2021 net sales at Athleta were up 48 percent compared to fiscal year 2019 with comparable sales up 39 percent versus 2019. Gap said Athleta is on track to hit $2 billion in net sales by fiscal year 2023, led by its digital strength and capabilities, including its growth in the wellness space six months into the launch of AthletaWell.

Gap said that due to the significant impact of COVID-19 on prior year figures, financial comparisons are being made primarily to the same period in fiscal year 2019.

Companywide, Gap reported a diluted loss per share for the fourth quarter was $0.04. Excluding charges related to strategic changes in the company’s European business, the fourth quarter adjusted diluted loss per share was $0.02. Fiscal year 2021 reported diluted earnings per share was $0.67. Excluding fees associated with restructuring the company’s long-term debt, as well as charges related to divestiture activity and strategic changes in the company’s European business, adjusted diluted earnings per share for fiscal year 2021 was $1.44.

“After two years of restructuring, including divesting smaller non-strategic brands, transitioning our European market to an asset-light partnership model and shedding underperforming North American stores, our core business is strong and we are poised for balanced growth across our four billion-dollar lifestyle brands,” said Sonia Syngal, CEO, Gap, Inc. “As our teams address near-term disruption from the acute headwinds that muted our fourth-quarter performance, we are confident in our ability to execute against our long-term strategy, capitalizing on our investments in demand generation, customer loyalty and artificial intelligence to accelerate profitable growth.”

The company’s fourth-quarter fiscal year 2021 net sales of $4.5 billion were down 3 percent compared to 2019. Strategic permanent store closures and divestitures reduced net sales by approximately 9 percentage points versus 2019. Online sales grew 44 percent compared to the fourth quarter of 2019 and represented 43 percent of the total business. Fourth-quarter comparable sales were up 3 percent versus 2019 and 3 percent year-over-year.

Fiscal year 2021 net sales of $16.7 billion represented a 2 percent increase versus fiscal year 2019. Strategic permanent store closures and divestitures reduced net sales by approximately 7 percentage points versus 2019. Fiscal year 2021 online sales grew 57 percent versus 2019 and represented 39 percent of total net sales. Comparable sales for fiscal year 2021 grew 8 percent versus 2019 and were up 6 percent year-over-year. The comparable sales calculation reflects online sales and comparable sales days in stores that were open.

Among its other banners: 

  • Old Navy’s fourth-quarter net sales were muted in part due to supply chain impacts, up 2 percent versus 2019 with comparable sales flat versus 2019. For the year, the brand crossed $9 billion in net sales, up 14 percent compared to fiscal year 2019 with comparable sales up 12 percent versus 2019. Leaning into its market leadership in Active, Denim, Kids and Baby, Old Navy said it is well-positioned as a value brand, offering democracy of style for families at the lowest prices.
  • Gap’s fourth-quarter net sales declined 13 percent versus 2019, with permanent store closures contributing an estimated 17 percentage points of decline. Global comparable sales increased 3 percent with North America comparable sales up 12 percent versus the fourth quarter of 2019. Fiscal year 2021 net sales were down 12 percent compared to fiscal year 2019, with permanent store closures reducing sales by an estimated 15 percentage points. Global comparable sales for fiscal year 2021 were up 2 percent with North America comparable sales up 12 percent versus 2019. Building on its base of a healthier core and right-sized fleet, Gap is set to scale the strong partnerships it established in 2021, from Gap Home with Walmart and Yeezy Gap to its joint venture with NEXT in Europe, to further extend the brand’s reach and relevancy around the globe.
  • Banana Republic’s fourth-quarter net sales declined 11 percent versus 2019, with permanent store closures contributing an estimated 10 percentage points of the decline. Comparable sales were down 2 percent versus the fourth quarter of 2019. Fiscal year 2021 net sales were down 18 percent compared to fiscal year 2019, with permanent store closures reducing sales by an estimated 10 percentage points. Comparable sales for fiscal year 2021 were down 9 percent versus 2019. Following the brand’s successful re-launch, Banana Republic’s new premium positioning has resulted in Average Unit Retail growth, higher basket size and an increase in higher-income shoppers. At the same time, the brand is expanding into new adjacent categories such as the launch of BR Baby.

Fourth Quarter Fiscal 2021 Results

  • Gross margin was 33.7  percent in the fourth quarter, 260 basis points lower than 2019 adjusted gross margin driven by:
    • Merchandise margins down 500 basis points versus 2019 due to nearly 600 basis points of estimated air freight costs which were partially offset by higher Average Unit Retails through lower discounting; and
    • Rent, Occupancy and Depreciation (ROD) leverage of 240 basis points versus 2019 due to online growth, strategic store closures and rent negotiations.
  • Reported operating expenses were $1.5 billion or 33.5  percent of net sales. Adjusted operating expenses were 33.3  percent of net sales, 300 basis points higher than the 2019 adjusted rate. The fourth quarter rate reflects an increased investment in marketing to support demand generation, investments in technology to build out digital and supply chain capabilities, and higher incentive compensation and fulfillment expenses, partially offset by reductions in store expenses.
  • Operating margin for the quarter was 0.2  percent on a reported basis. Adjusted operating margin of 0.4  percent decreased 550 basis points compared to adjusted operating margin in 2019 and includes an estimated impact of nearly 600 basis points or $275 million in transitory air freight expense.
  • Net interest expense for the quarter was $16 million.
  • Tax expense for the quarter was $8 million on a pre-tax loss of $8 million resulting in an effective tax rate of negative 100  percent.

Fiscal Year 2021 Results

  • Gross margin of 39.8  percent improved 220 basis points versus 2019 adjusted gross margin driven by:
    • Merchandise margins down 100 basis points versus 2019 as Average Unit Retail growth was offset by an estimated 240 basis points of air freight expense; and
    • Rent, Occupancy and Depreciation (ROD) leverage of 320 basis points versus 2019 due to online growth, strategic store closures and rent negotiations.
  • Operating expenses were $5.8 billion or 35.0  percent of net sales on a reported basis. Adjusted operating expenses were 34.3  percent of net sales, 310 basis points higher than the 2019 adjusted rate. The fiscal year 2021 rate reflects increased investment in growth, primarily through marketing and technology, as well as higher incentive compensation costs.
  • Operating margin for fiscal year 2021 was 4.9  percent on a reported basis. Adjusted operating margin of 5.5  percent decreased 90 basis points compared to 2019 adjusted operating margin and includes an estimated impact of approximately 240 basis points or $430 million in air freight expense.
  • Net interest expense for fiscal year 2021 was $162 million.
  • The effective tax rate for the fiscal year 2021 was 20.7  percent. Excluding the net impact related to divestitures, strategic changes in the company’s European business and loss on extinguishment of debt, the full year adjusted effective tax rate was 26.2  percent.
  • During the year, the company repurchased 9 million shares for a total of $201 million and ended fiscal year 2021 with 371 million shares outstanding.
  • The company paid a dividend of $0.12 per share during the fourth quarter of fiscal year 2021. In fiscal year 2021, the company paid dividends totaling $226 million. In addition, on February 24, 2022, the company announced that its Board of Directors authorized a first quarter fiscal 2022 dividend of $0.15 per share, an increase of 25  percent versus the fourth quarter fiscal 2021 dividend.
  • Fiscal year 2021 ending inventory was up 23  percent year-over-year with about 15  percent of the growth driven by longer in-transit times. The remaining increase was driven by higher Average Unit Cost resulting from air expense that the company expects to sell through in the first half of fiscal 2022 and from product mix shifts into higher cost items.
  • The company ended fiscal year 2021 with $0.9 billion in cash and cash equivalents. Fiscal year 2021 free cash flow, defined as net cash from operating activities less purchases of property and equipment, was $115 million.
  • Fiscal year 2021 capital expenditures were $694 million.
  • The company ended fiscal year 2021 with 3,399 store locations in over 40 countries, of which 2,835 were company operated.

Additional information regarding adjusted gross margin, adjusted operating expenses, adjusted operating margin, adjusted effective tax rate, and free cash flow, all of which are non-GAAP financial measures, is provided at the end of this press release along with a reconciliation of these measures from the most directly comparable GAAP financial measures for the applicable period.

Fiscal Year 2022 Outlook
For fiscal year 2022, the company expects its reported diluted earnings per share to be in the range of $1.95 to $2.15. Excluding a net benefit expected from international initiatives, the company expects its adjusted diluted earnings per share to be in the range of $1.85 to $2.05. The company provided the following additional guidance:

  • Net Sales: The company expects fiscal year 2022 revenue growth to be in the low single-digit range versus fiscal year 2021 with first quarter net sales expected to be down mid to high-single digits versus the first quarter of 2021.
  • Operating Margin: The company expects to deliver an operating margin of 6.3  percent to 6.8  percent on a reported basis and 6.0  percent to 6.5  percent on an adjusted basis in fiscal year 2022.
  • Net Interest Expense: The company expects net interest expense of about $70 million for fiscal year 2022.
  • Effective Tax Rate: The company expects its fiscal year 2022 effective tax rate to be about 27  percent.
  • Inventory: The company expects first quarter-ending inventory to be up in the mid-twenty percent range relative to the first quarter of fiscal year 2021 as a result of earlier booking to offset longer in-transit times.
  • Capital Expenditures: The company expects capital spending to be approximately $700 million in fiscal year 2022. Capital spending is expected to primarily support growth investments including digital, loyalty, and supply chain capacity projects, along with investment in store growth for Old Navy and Athleta.
  • Real Estate: The company expects to open about 30 to 40 stores each for Old Navy and Athleta in fiscal year 2022. In addition, as part of its 350-store closure plan, the company expects to close about 50 to 60 Gap and Banana Republic stores in North America during the year.

“As we transition to 2022, we are focused on delivering value to shareholders through our economic model, enabled by the progress we’ve made against our strategy through repositioning unprofitable areas of the business and building brand relevance,” said Katrina O’Connell, executive vice president and chief financial officer, Gap, Inc. “Our primary focus is on the long-term health of the business and delivering profitable growth year after year. We are clear on our 2022 priorities and are acutely focused on realizing increased operational efficiency and, most importantly, driving sustainable, profitable growth.”

Photo courtesy Athleta