Dive Brief:

• For what CFO Katrina O'Connell called a "standout performance" in the first quarter, Gap Inc. on Thursday credited the U.S. government's pandemic relief and swift vaccine rollout as well as its own execution. Net sales rose 89% from last year and 8% from 2019 to $4 billion; online sales rose 61% from last year and 82% from 2019.

• Even the beleaguered Gap brand saw some recovery, at least at home: Comps there rose 29% from 2020 and fell 1% from 2019, but rose 9% from 2019 in North America. Old Navy comps rose 35% from 2020 and 25% from 2019. Banana Republic comps fell 4% from 2020, 22% from 2019. At Athleta, comps grew 27% from 2020, 46% from 2019. Companywide, comps rose 28% year over year and 13% from 2019.

• The company swung into the black, with net income rising 118% to $166 million from last year's $932 million loss. Net income was down 26.9% from two years ago.

Dive Insight:

Old Navy and Athleta are leading the turnaround at Gap Inc., which beat most analyst expectations in the quarter, but the company's namesake brand may also finally be on the mend.

Ahead of the conglomerate's earnings call on Thursday, several news outlets reported that Gap's much anticipated Yeezy collection would drop in June, but CEO Sonia Syngal would only say that the brand would provide updates on that soon. Several analysts see much potential in the collaboration with Kanye West, less so in the brand's recent announcement of a home goods line forged with Walmart. The deal springs from a global licensing play that also includes an upcoming eyewear line. But GlobalData Managing Director Neil Saunders warned that the Walmart tie-up "smacks of desperation and short-term thinking" and questioned whether the retail giant is the "right partner" in the effort.

"We are also confused as to how this fits with the wider strategy of working with the YZY brand," he said in emailed comments. "To us it seems like Gap is scrabbling around for short-term, random fixes rather than having a coherent long-term vision of where it wants to take the brand."

The company's growth strategy received high marks in several research notes following the call, but some tactics have their downsides. For example, Gap Inc.'s planned adjustments to its footprint, which entails the permanent closure of hundreds of mall-based stores, are on track but have already undermined sales. 

The company said that this year, it expects to open about 30 to 40 Old Navy stores and 20 to 30 Athleta stores in 2021 and close some 75 Gap and Banana Republic stores in North America. As seen at Nordstrom this week as well, downsizing takes a bite out of results. The Gap brand, where net sales fell 16% on a two-year basis, took the brunt of that: Pandemic-related closures abroad drove a 4% decline from 2019, and the permanent closures drove an even bigger 11% decline, per the release.

Banana Republic continues to be hurt by not just closures but also consumers' rejection of more formal work apparel. Gap Inc. also recently dumped its Janie and Jack and Intermix brands, leaving Old Navy and Athleta to drive growth. After a pre-pandemic period when Old Navy faltered for several quarters, the discount brand more recently is once again a dependable source of sales and growth.

But Athleta, still a small player in the portfolio, may be the breakout star, with net sales up 69% year over year and 56% over 2019, and e-commerce up 113% over 2019, according to an earnings presentation. The activewear brand has wooed gymnastics phenom Simone Biles and track and field star Allyson Felix from Nike, and Syngal said that its female empowerment messaging and inclusive sizing are resonating with consumers. In the next couple of years, the company expects the brand to double its annual revenue take to $2 billion, in part by boosting its store count to 300 or so and expanding into Canada.