Old Navy and Athleta Save Gap, Again

William Arsn

Gap Inc. had some exciting updates to share about its latest quarter, but some things looked all too familiar.

The good news was that the apparel company has managed to almost double its e-commerce revenue, accounting for half of the company’s sales—up from a quarter last year. Net sales fell 18{5667a53774e7bc9e4190cccc01624aae270829869c681dac1da167613dca7d05} in the quarter ended Aug. 1 compared with a year earlier, much better than the 27{5667a53774e7bc9e4190cccc01624aae270829869c681dac1da167613dca7d05} drop that analysts had forecast and a huge improvement from the 43{5667a53774e7bc9e4190cccc01624aae270829869c681dac1da167613dca7d05} decline in the first quarter. Net loss for the quarter was $62 million, a meaningfully lower number than the $171 million that Wall Street expected.

What hasn’t changed is lagging performance at Gap’s namesake brand and Banana Republic. Net sales at the two brands declined 28{5667a53774e7bc9e4190cccc01624aae270829869c681dac1da167613dca7d05} and 52{5667a53774e7bc9e4190cccc01624aae270829869c681dac1da167613dca7d05}, respectively. Value brand Old Navy was able to retain 95{5667a53774e7bc9e4190cccc01624aae270829869c681dac1da167613dca7d05} of sales, and athleisure label Athleta managed to increase revenue. These two have been the company’s beacons of hope for a while, but they were helped even further as consumer trends moved in their favor. For Old Navy, a shift to cheaper brands helped as consumers dealt with thinner wallets, while Athleta benefited from demand for active and comfort categories.

Part of the weakness at Gap and Banana Republic reflects their locations—they tend to be in malls, which consumers have been reluctant to visit. Old Navy stores, on the other hand, fared better as they tend to be located in off-mall locations where people feel safer. Performance at Banana Republic was particularly tough because it sells work-focused clothing, which is hardly in demand at the moment. Of course, these two brands were on a steady decline for years before the coronavirus pandemic hit.

As much as Old Navy and Athleta look promising, the company can’t brush off weakness in Gap and Banana Republic, which still collectively account for more than half of its company-operated store fleet. The company said on an earnings call late Thursday that it will close more than 225 Gap and Banana Republic stores this year, a continuation of a multiyear pruning effort. Chief Executive Officer Sonia Syngal brushed off hopes the company might spin off Old Navy, saying it continued to see potential in all four brands and is focused on “unlocking potential” rather than divestment.

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