Gap Sees Return to Profitable Growth in 2021

Gap shares surge as the retailer says sales will expand by low- to mid-single digits annually.
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Gap  (GPS) - Get Report said Thursday that the apparel retailer should return to profitable growth next year as it looks to bounce back from the coronavirus pandemic shutdown.

Shares of the San Francisco company were at last check up 12% to $20.92.

The comments came during the Gap's virtual investor meeting, Bloomberg reported.

Gap said sales would expand by low- to mid-single digits annually as it tried to reach a profit margin of at least 10% by 2023.

The company also expects to close 350 Gap and Banana Republic stores in North America by year-end 2023. The bulk of the closures will be done by year-end 2021. 

The company, which had 129 Gap-brand stores in Europe at the end of July, said late on Tuesday that options being explored include closing outlets in the UK, France, Ireland and Italy by mid-2021, Reuters reported.

In addition, Gap is also exploring strategic alternatives in Europe that could see it partially shift from company owned to partner model.

The company said that it saw sales at its Athleta activewear line reaching $2 billion annually by 2023. Net sales were up 6% last quarter, Bloomberg noted, while sales at Gap, Old Navy and Banana Republic fell.

In August, Citi analysts upgraded the stock to buy from neutral, citing the untapped potential of the Athleta brand. 

Gap said it saw operating cash flow reaching 10% of sales and its margin for earnings before interest and taxes at 10% or more in three years.

Mall-based exposure will "decline meaningfully," the company said.

Gap earlier this year was deemed a nonessential retailer, forcing the company to shutter its stores during stay-at-home orders around the U.S.

Earlier this month the company said it planned to hire more than 10,000 new workers to help support its customer service, as it geared up for the holiday season.