May 22, 2014, 4:42 PM

E-commerce accounts for all the Q1 growth at Gap

Online sales increased 13% to $575 million during a quarter in which the retailer’s same-store sales slumped for its major brands. Without the $66 million in web growth, Gap’s sales would have been negative for the quarter.

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Gap Inc.’s online sales increased 13.0% in its fiscal first quarter, providing a $66 million lift in net sales that offset declining same-store physical store sales. Net sales for the company as a whole increased only $45 million, or 1.2%, to $3.774 billion.

The retail chain reported today that its web sales in the quarter ended May 3 totaled $575 million, up 13.0% from $509 million in the same period a year ago.

Gap is No. 19 in the 2014 Top 500, after 21.5% growth in web sales last year, according to the Top 500 Guide.

In general, CEO Glenn Murphy told analysts, “We didn’t have our best first quarter.”

Same-store sales for the company’s Gap brand were down 5.0% worldwide in the first quarter, down 1.0% for Banana Republic and a negative 1.0% for Old Navy.

Overall, U.S. net sales, online and offline, declined 0.7% in the quarter. Those sales represent 77.0% of Gap Inc. sales. The biggest gains in net sales were 13.1% in Europe and 12.1% in Asia.

Old Navy opened its first company-operated physical store and an e-commerce site in China in the first quarter. For the balance of the fiscal year, Gap says it plans to open about 185 company-operated bricks-and-mortar stores, with a focus on China, Old Navy in Japan, its Athleta brand and global outlet stores.

Speaking of China, Murphy told analysts, “We have a very strong online business.” He added that online profit margins are higher in China than in the company’s bricks-and-mortar stores, and that China is not yet profitable for Gap.  He predicted that China will soon be Gap’s second-largest market after the United States and that “profitability will be there.”

Gap began selling online in China with the launch of Gap.cn in November 2010. Gap is No. 275 in the Internet Retailer China 500, with 2013 online sales in China of $22.5 million by Internet Retailer's estimate.

Commenting on the first quarter as a whole, Murphy said, “After a disappointing start, I’m pleased with how the business performed toward the end of the quarter, especially at Old Navy. We are confident in our strategies to drive long-term value.”

For the first quarter ended May 3, Gap Inc. reported:

  • Online sales increased 13.0% to $575 million from $509 million in the same quarter a year ago.
  • Net sales, including offline and online, increased 1.2% to $3.774 billion from $3.729 billion.
  • Net income was $260 million, down 21.9% from $333 million a year ago.
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