Gap, Inc. (NYSE: GPS) reported Q3 EPS of $0.27, $0.24 worse than the analyst estimate of $0.51. Revenue for the quarter came in at $3.94 billion versus the consensus estimate of $4.47 billion.

GUIDANCE:

Gap, Inc. sees FY2021 EPS of $1.25-$1.40, versus the consensus of $2.20.

• The company now expects its reported full-year diluted earnings per share to be in the range of $0.45 to $0.60, which includes a $325 million loss on extinguishment of debt and approximately $120 million in net charges primarily related to divestitures and changes to its European operating model. Excluding these charges, adjusted full-year diluted earnings per share are expected to be in the range of $1.25 to $1.40, which contemplates a range of on-time delivery rates for our holiday flows and other supply chain challenges. This guidance includes an estimated $550 to $650 million of lost sales from supply chain constraints on available inventory, as well as approximately $450 million in total air freight expense for the year. The company noted that when adjusting for transitory costs and sales lost from the acute disruption, the business momentum is strong.
• Net Sales: The company now expects full-year revenue growth to be about twenty percent versus fiscal year 2020.
• Operating Margin: The company now expects its reported operating margin for fiscal year 2021 to be about 4.5%, with adjusted operating margin expected to be about 5%, on track to achieving a 10% operating margin by the end of 2023.
• Interest Expense, Net: The company expects full-year net interest expense of $163 million, down $47 million versus prior guidance, which reflects lower interest rates for the third and fourth quarters and a reduction in the company’s overall debt balance.
• Effective Tax Rate: The company now expects its reported fiscal year 2021 effective tax rate to be about 23%. Excluding the net impact related to divestitures, strategic changes to its European business and loss on extinguishment of debt, the company expects its adjusted fiscal year 2021 effective tax rate to be about 26%.
• Capital Expenditures: The company continues to expect capital spending to be approximately $800 million in fiscal year 2021. Consistent with the company’s Power Plan 2023 strategy, capital spending is expected to primarily support growth investments including digital, loyalty, and supply chain capacity projects, along with investment in store growth for Old Navy and Athleta.
• Real Estate: The company continues to expect to open about 30-40 Old Navy and 20-30 Athleta stores in 2021, as well as close approximately 75 Gap and Banana Republic stores in North America.
• “While there is still hard work ahead to navigate near-term challenges in the macro environment, the team has made tremendous progress, adapting quickly while never taking their focus off of our long-term objectives,” said Katrina O’Connell, Executive Vice President and Chief Financial Officer, Gap Inc. “We have strong demand for our brands and our fleet rationalization and divestitures are progressing well and adding value. Our operating margin remains on track to hit 10% by 2023, in line with our plan, even as we navigate these near-term disruptions. While our mitigation efforts are driving significant transitory costs, we view these as investments in preserving market share and driving overall health and relevance for our brands.”

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