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Gap's (GPS) Athleta Brand Cheers Women With Sleepwear Launch

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With consumers increasingly shifting to casual and comfort wear as a result of continued stay-at-home practices due to the ongoing COVID-19 situation, Gap, Inc.’s (GPS - Free Report) Athleta brand has launched its first sleepwear product line for women. This move supports the importance of holistic wellness and self-care for women. Notably, the new women’s sleepwear collection, which is now available on Athleta.com, comes with sustainable and natural fabrics that are soft, light-weighted and include a cloud-like rib knit, buttery TENCEL Modal jersey and cozy organic cotton.

Prior to this, the company entered into the mask-making business, following which solid demand for its masks helped establish new customer engagements across other product offerings. Other retailers who have shifted from making apparel to manufacturing face masks include Hanesbrands (HBI - Free Report) , Ralph Lauren (RL - Free Report) and Canada Goose Holdings (GOOS - Free Report) .

Coming back to Athleta, the brand’s value-driven active and lifestyle categories increased digital marketing investments and its focus on product strategy has been aiding sales. In third-quarter fiscal 2020, the company’s net sales were up 35%, with comps growth of 37%. Notably, Athleta recorded the highest comps growth in the brand’s history, with more than 50% contribution from the online business.

What Else Do You Need to Know?

Gap’s powerhouse brand, Old Navy, which aims at creating affordable high-quality fashion for the whole family, remains a significant long-term growth opportunity. Notably, net sales for the Old Navy brand improved 15% in the fiscal third quarter, with comps growth of 17%. Also, the Old Navy brand’s digital business has seen significant acceleration since the start of the pandemic on the back of robust customer demand as well as relevant digital marketing investments.

Driven by a shift in consumer preference toward online shopping and strength in its Gap, Old Navy and Athleta brands, e-commerce sales improved 61% in the reported quarter, representing about 40% of its net sales in the fiscal third quarter. Moreover, its e-commerce business acquired 3.4 million new customers in the fiscal third quarter, which represents more than 145% growth in new online customer acquisitions year over year. Encouragingly, it is investing in online shipping capabilities and curbside pickup options in a bid to provide an improved shopping experience.

Management is on track with the execution of its Power Plan 2023, which focuses on opening highly-profitable Old Navy and Athleta stores while closing the underperforming Gap and Banana Republic stores. As part of the plan, the company expects the Old Navy and Athleta brands to contribute about 70% of sales by 2023. Notably, these brands cumulatively accounted for 63% of sales in third-quarter fiscal 2020. With the closing of underperforming Gap and Banana Republic stores, the company expects to realize $100 million in EBITDA savings on an annualized basis by the end of 2023. It targets the e-commerce business to contribute 50% of sales by the end of 2023.

Nonetheless, the company continues to grapple with dismal in-store performance, which also weighed on its top-line growth in the fiscal third quarter. Notably, a 20% decline in in-store sales and the company’s ongoing strategy to close underperforming stores partly hurt sales in the fiscal third quarter. Also, higher operating expenses, driven by a significant rise in marketing expenses across all brands, and costs incurred for health and safety measures in stores remain headwinds.

Nevertheless, we believe that the company’s well-chalked efforts including product expansion, strength in Old Navy and Athleta brands along with a solid online show are likely to aid this Zacks Rank #3 (Hold) stock. The stock has declined 2.8% in the past three months against the industry’s growth of 43.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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