stock is tumbling in late trading Tuesday, after the apparel maker’s third-quarter profit came up short.
Gap (ticker: GPS) said it earned a 25 cents per share on revenue that edged down 0.1% from a year ago to $3.99 billion. Analysts were looking for EPS of 32 cents on revenue of $3.82 billion.
Same-store sales rose 5% year over year, while consensus called for comps to decline 0.3%. E-commerce sales jumped 61%. Units Old Navy and Athleta were once again the standouts in the quarter, as comparable sales rose 17% and 37%, respectively, at those divisions year over year; comps at its flagship Gap brand and Banana Republic outlets fell 5% and 30%, respectively.
The company didn’t provide a forecast but said that it expects sales for the holiday-shopping season to match or slightly exceed 2019 levels.
Gap stock is down more than 10% to $24.01. in after-hours trading, and investors might have been hoping for a stronger showing, given the shares’ recent rally. Gap stock is up about 50% in 2020, although the stock was out of favor for much of the first half of the year, given pandemic-related mall closures. Yet investors have warmed up to the shares recently, and Gap has risen more than 70% in just the past three months.
While both Old Navy and Athleta turned in positive revenues, rising 15% and 35% respectively, from the year-ago period, Gap and Old Navy total sales remained down double digits. In addition, while overall same-store sales came in ahead of expectations, the rate of growth slowed from the second quarter, and digital sales growth cooled in the period. With experts forecasting holiday sales to rise as much as 1.5% this year, investors may have been hoping that Gap’s holiday outlook would be brighter as well.
The growth may not have been as white-hot as the prior period, but it was still robust. Gap said it acquired 3.4 million new customers via its omnichannel platform, representing 145% growth in new online-customer acquisitions from the third quarter of 2019—though down slightly sequentially. Gap said 40% of sales came from its digital channel, and the company reiterated a goal for that figure to climb to 50% by 2023.
Moreover, it said Old Navy’s baby and children’s apparel business expanded market share to become the leading brand in that segment, by the company’s calculations. Gap ended the quarter with $2.6 billion in cash and equivalents, an increase from the second quarter and more than double the $1.1 billion it logged in the year-ago period. Gross margins expanded in the period, too.
JPMorgan upgraded Gap at the start of the week, citing strength at Old Navy and Athleta; it also trades cheaply on a sales basis.
Write to Teresa Rivas at [email protected]