Gap Inc. (NYSE:GPS) shares dropped sharply on Wednesday, after the company reported fiscal third-quarter earnings that fell short of expectations, as higher spending on marketing offset sales gains at Old Navy and Athleta, while the company’s namesake and Banana Republic brands reported double-digit declines.
Under CEO Sonia Syngal, the retailer has centered investments around new advertising to clearly define each of its core brands. The effort kicked off with recent holiday-themed commercials, in a bid to gain market share in key categories such as women’s workout apparel and denim.
While the global health crisis has made it difficult for many companies to offer a future outlook, Gap said it "remains optimistic" about the future. It expects fourth-quarter sales to be about equal to or slightly higher than a year ago. Analysts had been calling for a decline of 2.8%.
For the quarter ended Oct. 31, Gap earned $95 million, or 25 cents per share, compared with $140 million, or 37 cents a share, a year earlier. That came in short of expectations for earnings of 32 cents per share.
Sales for the period were about flat with the prior year at $3.99 billion and outpaced expectations for $3.82 billion.
The 5% gain in same-store sales, which track sales online and at stores open for at least 12 months, were boosted in large part by the company’s digital business, which surged 61% and accounted for 40% of total sales during the quarter.
Gap shares sank $4.61, or 17.1%, early Wednesday to $22.26.
