Athleta, owned by Gap, Inc., delivered another quarter of strong growth and said its affiliation with two Olympians, Simone Biles, shown below right, and Allyson Felix, is driving brand awareness.

Athleta delivered 27 percent comparable-store growth versus the second quarter of 2019. Against the year-ago period, comps grew 13 percent.

Net sales were $341 million in the quarter, up 27.7 percent from $267 million a year ago. Compared to the second quarter versus 2019, sales improved 35.3 percent from $252 million.

“As the country reopened, Athleta saw its performance lifestyle assortment accelerate as customers found versatility in style that performs for travel, work and working out,” said Sonia Syngal, Gap’s CEO. “As the perfect amplifier of the brand’s values, Athleta’s sponsorship of world-class athletes in Tokyo boosted brand awareness of 33 percent, versus 26 percent last year according to YouGov.”

Athleta signed Felix, shown above, to an endorsement deal in 2019 after splitting with Nike. The 35-year-old sprinter made history, winning her 11th career medal at the Tokyo Olympics. Biles, the four-time U.S. Olympic gold medalist, left Nike in April to join Athleta and earned a bronze medal in the balance beam final at the Tokyo Olympics.

Gap also said inclusive sizing, which launched last quarter, continues to perform well, supporting customer loyalty.

Athleta continues to be on a roll as sales have accelerated with the emergence of the pandemic. Its strong comp gains in the second quarter follow first-quarter comps that grew 27 percent year-over-year and 46 percent versus 2019. Last year, comps grew 26 percent in the fourth quarter, 37 percent in the third quarter and 19 percent in the second quarter.

Next week, Athleta will launch online in Canada, which Syngal said was made possible by Gap’s DC network and existing infrastructure in Canada. Athleta said it would “soon” be opening stores in Toronto and Vancouver.

“Athleta has a consumer curiosity that fuels every detail of its brand expression,” added Syngal. Last month, Athleta launched AthletaWell, a digital platform rooted in well-being designed to build loyalty and engagement with a message of women empowerment.

Said Syngal, “Members can engage in dynamic conversations with vetted experts on topics like outfitting, fitness, mental health and body positivity. They can also participate in one-of-a-kind experiences from interactive workshops to guided meditation and enjoy premium content from partners like Obe Fitness. This is an integral part of a set of evolution from a performance brand to a true lifestyle brand and a key component of our strategy to develop enduring relationships with new and existing customers.”

In July, Athleta was part of a $15 million fundraising round for Obe Fitness that valued the digital-workout platform at about $190 million.

Companywide, Gap saw income rise to $258 million, or 67 cents a share, from a loss of $62 million, or 17 cents, in the year-ago period, heavily impacted by the pandemic. Excluding charges primarily associated with strategic changes to its operating model in Europe, adjusted earnings per share were 70 cents a share, beating the 46 cents consensus estimate.

Net income in the last quarter also exceeded the 2019 quarter when profits reached $168 million.

Net sales of $4.2 billion were the highest second-quarter sales in more than a decade, up 29 percent versus $3.3 billion during the 2020 quarter and up 5 percent compared to 2019 pre-COVID-19 levels. Comparable sales were up 3 percent year-over-year and up 12 percent versus 2019.

Among its other brands:

  • Old Navy Global net sales were up 21 percent to $2.39 billion versus 2019, maintaining its position as the second-largest apparel brand in the U.S. after Nike. Comparable sales were flat to last year and up 18 percent versus 2019.
  • Gap Global net sales declined 10 percent to $974 million versus 2019, with permanent store closures resulting in an estimated 14 percent sales decline and international COVID-19-closures driving an estimated one percent decline on a two-year basis. Global comparable sales declined 5 percent year-over-year and increased 3 percent versus 2019.
  • Banana Republic Global net sales declined 15 percent to $495 versus 2019, with permanent store closures resulting in an estimated 10 percent sales decline and international COVID-19-closures driving an estimated one percent decline on a two-year basis. Comparable sales were up 41 percent year-over-year and down 5 percent versus 2019.

Old Navy’s growth was driven by kids and baby, denim and active. Katrina O’Connell, CFO, said strategic partnerships within Gap’s vendor base allow for rapid product innovation across the company, such as the launch of Old Navy’s Powersoft active fabric sourced from fabric technology used in Athleta’s Powervita collection. O’Connell added that Powervita “has enabled Old Navy to dominate the value active space and has propelled the company’s total active growth with sales on target for $4 billion in revenue in fiscal 2021.”

Combined, sales of Old Navy and Athleta, the company’s two growth vehicles represented 65 of Gap’s sales. O’Connell said, “Both brands delivered standout sales performances led by their brand strength, omnichannel offerings and relevant product categories.”

Gap’s companywide second-quarter online sales grew 65 percent versus the second quarter of 2019 and represented 33 percent of its total business. Store sales declined 11 percent versus the second quarter of 2019, primarily due to 11 points of impact from divestitures and strategic closures and an estimated two-point decline due to COVID-19-closures outside of the U.S.

Gross margins improved 440 basis points to 43.3 percent. Margins benefited from rent, occupancy and depreciation (ROD) leverage of 330 basis points primarily related to online growth, store closures and renegotiated rent. Merchandise margins expanded 110 basis points due to strong product acceptance and lower discounting, offsetting approximately 130 basis points in higher shipping costs related to strong growth in the company’s online business.

On an adjusted basis, operating expenses were 33.1 percent of sales, increasing 260 basis points due to higher marketing and compensation costs.

Looking ahead, Gap raised its earnings guidance for the year to a range of $1.90 to $2.05. Excluding charges related to the divestiture of the Janie & Jack and Intermix businesses and estimated charges related to strategic changes in the company’s European business, EPS is projected in the range of $2.10 to $2.25. Previously, EPS was expected in the range of $1.55 to $1.70 on a reported basis or $1.60 to $1.75 excluding the charges.

The company now expects net sales growth for fiscal-year 2021 to be about 30 percent versus 2020, up from a previous low to mid-20 percent range.

Gap said its full-year outlook reflects the impact of headwinds in its global supply chain, potential inflationary pressures and current COVID-19 environment. Second-quarter inventory ended up 2 percent compared to 2020 and down 2 percent to 2019.

O’Connell said on the call, “As part of our strategy to mitigate challenges within the supply chain due to capacity and COVID’s impact, we are leveraging our scale advantages to ensure we have appropriate inventory to fuel sales growth during the important holiday season. We currently expect third-quarter ending inventory to be up mid-single-digits compared to last year.”

Photos courtesy Athleta