Gap Inc. Reports Third Quarter Results

GAP INC. (NYSE: GPS), a portfolio of purpose-led, billion-dollar lifestyle brands including Old Navy, Gap, Banana Republic, and Athleta, and the largest specialty apparel company in the U.S., reported a third quarter fiscal year 2021 diluted loss per share of $0.40. Excluding fees associated with restructuring the company’s long-term debt and net charges related to strategic changes in its European operating model, adjusted diluted earnings per share were $0.27. Additional information regarding adjusted diluted earnings per share, which is a non-GAAP financial measure, is provided at the end of this press release along with a reconciliation of this measure from the most directly comparable GAAP financial measure.

The company’s third quarter fiscal year 2021 net sales of $3.9 billion were down 1% compared to 2019 with supply chain disruption driving an estimated 8 percentage point negative impact due to constrained inventory.1 The company remains focused on digital dominance through investing in its ecommerce platform, strategically closing unprofitable stores and partnering to amplify in international markets. Online sales grew 48% compared to the third quarter of 2019 and represented 38% of the total business, even as store traffic continues to rebound. Investments in technology are driving an enhanced online experience as the company accelerates its digital strategy. Third quarter comparable sales were up 5% versus 2019. The comparable sales calculation reflects online sales and comparable sales days in stores that were open.

Compared to the third quarter of fiscal 2019:

*Reported gross margin of 42.1% increased 310 basis points versus 2019. Excluding a benefit related to transitioning the company’s European business to a partnership model, adjusted gross margin was 41.9%, an increase of 290 basis points driven by:
–Rent, Occupancy and Depreciation (ROD) leverage of 300 basis points versus 2019 due to online growth, strategic store closures and rent negotiations.
–Merchandise margins were down just 10 basis points versus 2019 as strong product acceptance offset nearly 200 basis points of online shipping costs and about 250 basis points of short-term headwinds related to air freight.
*Operating margin for the quarter was 3.9% on a reported basis. Adjusted operating margin of 4.3% decreased 320 basis points compared to 2019 adjusted operating margin and includes an estimated $300 million in lost sales due to constrained inventory, as well as approximately $100 million in transitory air freight costs.
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