Gap CEO Predicts Apparel Rebound as People Emerge From Covid-19

After the pandemic temporarily closed its stores and sapped demand for dresses and work attire, the company Thursday predicted net sales would increase by a mid- to high-teens percentage rate in 2021. The outlook anticipates a continued drag from the pandemic in the first half and a return to more normalized pre-pandemic sales in the second half of the year, the company said.

In the quarter ended Jan. 30, a holiday surge in online shopping helped the company offset sales declines at its stores. Continued gains at Old Navy and Athleta were offset by another quarter of declines at the Gap and Banana Republic brands. Overall comparable sales—which excludes recently closed or opened stores—fell slightly, including a 49% gain in online sales.

Ms. Syngal said Banana Republic had taken some “hard knocks” during the pandemic given its work-focused selection, but said 2020 launches of luxury athleisure and intimates have been well received. “For us, it’s all about regaining creative relevancy,” she said.

Ms. Syngal has laid out a plan to revive the long-struggling company by closing hundreds of Gap and Banana Republic stores, cutting the number of items it sells and pushing executives to take more creative risks with the flagship brand.

The company ended its fiscal year with higher-than-usual levels of unsold merchandise. Executives said the 14% jump in year-end inventory reflected goods that were held back in spring 2020 when stores were shut, as well as items that were held up by port delays, plus masks and hand sanitizers the company plans to sell this year.

“Our markdown inventory year over year is well below last year’s levels,” Gap Chief Financial Officer Katrina O’Connell said in an interview. “We feel quite confident that the assortments in the first half of the year will allow us to continue to expand our product margins.”

Ms. Syngal said the company had spent more than $150 million to make stores safer during the pandemic and anticipated a reduction in those expenses in the back half of 2021, as vaccines become more widely available.

Gap reported online sales of $6 billion for the fiscal year ended Jan. 30, which represented 45% of total sales for the year. Digital made up 25% of the retailer’s business in 2019. The company closed 228 Gap and Banana Republic stores in 2020 and plans to close about 100 this year.

For the fourth quarter, per-share earnings were 61 cents, including 45 cents in nonrecurring tax benefits and 12-cent impairment charge related to the Intermix business and resulting from a strategic review. Net sales fell 5% to $4.4 billion.

Write to Charity L. Scott at [email protected]