: Gap poised for a post-COVID apparel comeback, sells kids line Jack & Janie

United States

Gap Inc. GPS, -1.66%, which is executing a turnaround strategy, is poised for a comeback along with the broader apparel category, according to Wells Fargo and JPMorgan analysts.

“As consumers stayed home due to safety precautions and braced for an economic crisis, apparel share loss accelerated in 2020,” wrote Wells Fargo analysts.

With parties and other events canceled and lockdowns keeping shoppers at home, many spent money on comfortable clothing over the past year, and not much else.

Now with vaccines rolling out, restrictions easing in many places and consumers sitting on discretionary funds, analysts expect that consumers will need new outfits.

“In 2021, however, apparel appears well positioned to see an outsized benefit from the recovery dynamic,” Wells Fargo said.

See: ‘Plexiglass will stay up for a while’: Shoppers remain anxious about COVID but head back to stores

“We could see returns to pre-pandemic activities that should catalyze stagnant apparel spending – such as a return to offices, taking long-delayed vacations or social gatherings. We believe as outside-the-home activities are more widely adopted, a flood of pent-up demand could drive a major rebound in apparel by 2H21.”

One of the beneficiaries of this inflection is Gap.

Gap announced Thursday that it will be selling its kids brand Janie and Jack, which it acquired from the Gymboree bankruptcy in 2019.

“As part of Gap Inc.’s Power Plan 2023, and exemplified by this transaction, we are prioritizing strategic focus and resources behind the growth and potential of our billion-dollar brands in Old Navy, Gap, Banana Republic and Athleta,” said Sally Gilligan, Gap’s head of strategy, in a statement.

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Gap’s namesake brand still sells clothing and accessories for teens, kids and babies. Go Global Retail, a brand investment platform, is buying Janie and Jack, including stores, e-commerce and assets.

Wells Fargo expects Gap, Ulta Beauty Inc. ULTA, +1.51%, Urban Outfitters Inc. URBN, -4.06% and Ralph Lauren Inc. RL, -2.96% to be among the beneficiaries of the acceleration of the apparel category.

JPMorgan analysts say Gap, specifically the Old Navy brand, is already getting a lift in the second half of March thanks to the latest round of stimulus cash, with analyst fieldwork showing the average unit retail (AUR) for shirts and girls dresses.

Demin sales are also up, a boon for Gap. Increased denim demand is good for Levi Strauss & Co. LEVI, -0.46% and American Eagle Outfitters Inc. AEO, -3.75% as well.

Gap stock has jumped 44.1% over the last three months, and has skyrocketed more than 271% over the past year.

The benchmark S&P 500 index SPX, +0.07% is up 56.5% for the last 12 months.