If Gap (GPS) has good results for the back-to-school and holiday shopping seasons it may have nothing to do with zipperless puffer coats, created from the mind of Kanye West.
Instead, it may be able to partially thank oddly renewed shopper interest for the rather boring Gap logo hoodie, a staple in drawers since the late 90s.
“Our classic Gap hoodie is having a moment. So much so that we issued it in a vintage brown for pre-orders delivering this fall. And it is not just on TikTok. We’ve seen elevated search levels across Google. Seven times more people searched for the hoodie on gapinc.com in Q2 than a year ago,” Gap CEO Sonia Syngal told analysts on an earnings call Thursday evening.
Added Syngal, “Data shows we are attracting a younger fan base with our teen logo hoodie, outpacing adult sizes by four times. I share this all for a reason. This is a brand that is resonating, and this is a brand that people care about and want to wear proudly across their chest.”
Being proud to show off a Gap logo on one’s chest hasn’t been the norm in about a decade (maybe longer), so it’s understandable Syngal would mention it on the call.
Luckily for Gap, it’s seeing momentum with its cost-cutting efforts (see store closures) and Old Navy, as the interest in Gap hoodies may just be a near-term blip with consumers continuing to embrace coziness during the pandemic.
The retailer said second-quarter comparable sales at Old Navy increased 18% compared to the second quarter of 2019 (pre-pandemic). On this same basis, comparable sales at Gap rose 3% and Banana Republic fell 5%. Operating profit margins improved 190 basis points.
Here is how Gap performed in the second quarter compared to Wall Street analyst estimates:
The company issued full-year EPS guidance of $2.10 to $2.25, up from $1.60 to $1.75 previously. Analysts had expected $1.78 a share.
Gap shares rose nearly 3% to $27 in Friday’s session. The stock has still severely lagged the S&P 500 these past five years, notching a 2.5% gain versus a more than 100% rise for the broader market.
Analysts generally took an upbeat stance on Gap’s stock following the report, though many highlighted several key risks for investors to keep in mind.
“2Q was strong, but even more impressive was the outlook, which suggests an acceleration in sales vs. most peers who are pointing to a stable/slightly slowing trend. We attribute some of this to the fact that Gap appears to be navigating supply chain challenges better than most, despite heavy exposure to Vietnam. Momentum is encouraging but we still acknowledge risk given the reliance of the sales and profit picture on Old Navy, esp[ecially] without a definitive turn at Gap/Banana,” said Jefferies analyst Janine Stichter.
The analyst maintained a Hold rating on Gap shares with a $30 price target.