Amid the crisis created by the ongoing coronavirus pandemic, consumers’ have largely shifted their purchases to e-commerce, resulting in strong online demand. Retailers are quickly moving to leverage their online platforms, including websites and mobile apps, and omni-channel capabilities to serve customers’ demand better. One company, which has witnessed significant appreciation for its e-commerce and omni-channel efforts during the pandemic, is The Gap Inc. GPS.
Though the company’s top line for first-quarter fiscal 2020 was significantly impacted by the loss of sales due to store closures globally, the strong online show provided some cushion. Notably, Gap’s net sales decreased 43% year over year, with a 61% decline in in-store sales. While stores remained closed since the middle of March, the company witnessed strong online demand and leveraged its omni-channel capabilities to fulfill online orders and serve customers. Consequently, it recorded a 13% year-over-year increase in online sales in the fiscal first quarter. Moreover, the company recorded online sales growth of 40% in April due to increased online demand.
Brand-wise, there was a significant acceleration in the digital business for Old Navy and Athleta brands, recording increases of 20% and 49%, respectively. While online sales for the Gap and Banana Republic brands dipped 5% and 2%, respectively, in the fiscal first quarter, initial hardships were overcome through efforts to migrate customers online and adjustments to merchandise mix. After a splendid show in the fiscal first quarter, Gap notes that the momentum in online sales continued in the fiscal second quarter, recording nearly 100% online sales growth in May.
With the easing of stay-at-home orders in many states, the company recently initiated its store-reopening plans. Notably, it reopened nearly 1,500 stores in North America as of Jun 4, which is almost double of the initial target of reopening about 800 stores by the end of May. This represents nearly 55% of the company’s 2,800 stores in North America. Moreover, it expects almost the entire North America store fleet to be operational in June. Notably, the company has been witnessing robust store traffic and productivity at stores, particularly Old Navy and Athleta. Moreover, Gap is operating more than 2,100 stores as mini fulfillment hubs through ship-from-store and more than 500 stores as curbside pickup locations, a capability launched during the COVID-19 crisis.
We believe the company is moving steadfastly on the recovery track by remaining ahead of the plan on reopening schedules as well as leveraging online and omni-channel platforms through curbside pick-up and Buy Online Pick-up In Store capabilities. Further, the momentum in Gap’s e-commerce business is likely to provide it an edge over peers in the Retail – Apparel and Shoes industry.
Buoyed by the strong e-commerce showdown, shares of this CA-based company have rallied 62.6% in the past month compared with the industry’s growth of 37%. This Zacks Rank #3 (Hold) stock has also comfortably outperformed the Retail-Wholesale sector and the S&P 500 Index that advanced 8.4% and 10%, respectively. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Retailers of Apparel & Shoes Catch Up With Online Trend
Despite store closures due to the pandemic, the retailers of Apparel and Shoes stand to gain from their digital and omni-channel endeavors like Buy Online Pick-up in Store and Buy Online-Ship From-Store capabilities, improved websites and mobile apps, and contactless curbside pickup and other fulfillment services.
Further, we note that the online trend, which picked up due to the coronavirus pandemic, is here to stay. Though some states have eased restrictions, allowing stores to reopen on a market-by-market basis, consumers are still cautious about stepping out. While stores are gradually reopening and showing initial positive trends, online sites continued to witness strong growth in May. This indicates that the online trend will continue.
3 More Beneficiaries of Strong Online Demand
American Eagle Outfitters Inc. AEO witnessed strong digital demand in first-quarter fiscal 2020, which partly cushioned the top line. Despite a sales decline in the fiscal first quarter, the Zacks Rank #3 company reported a 33% increase in digital demand, as measured by ordered sales. After stores closed in the middle of March, demand accelerated to nearly 70% as new online customers more than doubled for both American Eagle and Aerie. This led to strong consolidated digital sales growth of 9%, with a 75% increase for Aerie and 15% growth for AE. The company’s Aerie and AE brands primarily gained from its previous store-only customers engaging online for the first time.
Further, it notes that growth in the digital channel remains strong even as stores reopen. On a quarter-to-date basis, digital demand has increased more than 100% for Aerie, while it is up about 50% for the AE brand. This also helped the stock gain 59.9% in the past month.
Abercrombie & Fitch Company ANF also witnessed strong gains from the online fervor in first-quarter fiscal 2020, which led the stock to grow 18.1% in the past month. Notably, the Zacks Rank #3 company’s net sales declined 34% in the fiscal first quarter, with digital sales increasing 25% year over year. The company witnessed double-digit growth in online sales from February till mid-March, which further accelerated in May. Moreover, the metric surged in April, particularly across the United States and Europe. Prior to this, it crossed the $1-billion mark in digital sales during fiscal 2019.
Zumiez Inc. ZUMZ reported a 35.3% decline in net sales in first-quarter fiscal 2020, driven by the impact of the coronavirus outbreak and the closure of brick-&-mortar stores globally. However, the company continued to direct resources to engage and serve customers through its digital platforms, which resulted in strong online sales growth. Despite a strong start to the quarter, its total sales declined 16.3% in the final eight weeks of the quarter. Meanwhile, its online sales during the eight weeks surged 75.9%, driven by efforts to serve customers digitally. Moreover, the company’s net sales for the four weeks, ended May 30, 2020, fell 8.6%.
Nevertheless, it witnessed greater-than-anticipated results in stores reopened and e-commerce demand. Notably, comparable sales, consisting of stores reopened and e-commerce traffic, increased 79.6% in May. By channel, comparable store sales for locations opened in May rose 38.5%, while e-commerce comparable sales soared 181.6%. The strong digital prospects led the Zacks Rank #3 company record 39.1% growth in the past month.
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