Gap set to shine as shoppers return

San Francisco-based Gap Inc on Thursday raised its full-year net sales forecast for the second time, betting on hot demand for its Old Navy and Athleta clothing brands as socializing makes a comeback with easing pandemic curbs, reports Reuters.

Gap also lifted its annual profit estimate, sending shares up 7 per cent aftermarket as both forecasts surpassed market expectations in a strong earnings season for retailers such as Macy's (M.N), Kohl's (KSS.N) and discounter T.J. Maxx (TJX.N).

"Our customers embraced summer with optimism, hungry for mood-boosting clothing as vacations and reunions became a reality," Gap Chief Executive Officer Sonia Syngal said on an earnings call.

Old Navy's net sales jumped 21 per cent in the second quarter from pre-pandemic levels two years ago, while Athleta surged 35 per cent.

Its tie-up with rapper Kanye West also brought in a windfall for the retailer, as 75 per cent of pre-orders for the Yeezy-Gap jacket came from brand new customers.

The Banana Republic owner has also been spending more on its digital business to tap the surge in online shopping, and said earlier in the day that it bought Drapr, a startup that lets customers try on clothes virtually.

Gap expects fiscal 2021 net sales growth of about 30%, compared with a prior forecast in the low-to-mid 20 per cent range. Analysts expected a 24.3 per cent growth, according to Refinitiv data.

The company, which has also been sharpening its focus on marketing and inclusivity, forecast annual adjusted profit between $2.10 and $2.25 per share from $1.60 to $1.75 earlier. Analysts expected $1.80.

Net sales of $4.2 billion were the highest second-quarter sales in over a decade, rising 29 per cent to beat estimates.

However, Gap said it is investing in air freight as it deals with delayed inventory deliveries due to shipping congestions and pandemic-led factory closures in countries it sources from, echoing comments from rival Abercrombie & Fitch.

Meanwhile, Barclays said on Friday its United States arm will buy a $3.8 billion credit card portfolio co-branded with clothing retailer The Gap Inc, as the British bank continues a strategy of partnering with big brands to grow in the US.

Barclays is buying the portfolio from Synchrony Bank, and the deal is expected to close in the second quarter of next year.

The deal comes at a time when banks worldwide are trying to expand fee-earning businesses such as credit cards, amid rock-bottom central bank interest rates that have squashed profits from their other main business of lending.