Sonia Syngal
Chief Executive Officer at GAP
Thank you, Joe, and good afternoon, everyone. Thanks for joining us today. As I reflect on the last 18 months, I'm inspired by the incredible transformation our teams have made in such a short time, despite an ongoing pandemic related disruption to our business in the broader economy. Coming off record sales performance in Q2, we had accelerated momentum heading into the back half before facing disruption to our supply chain, driven by the 2.5 month closure of our top manufacturing country, Vietnam, as well as port congestion, both of which affected our ability to fully meet strong customer demand. While we had planned into the known supply chain constraints as we entered the quarter, including COVID-related closures in Vietnam, the shock to our business persisted longer than anticipated as weeks turned into months.
We have been all hands on deck to address these headwinds and the resulting impact on our business, proactively navigating holiday and beyond, ensuring that the customer is at the center of every decision we make. To secure our supply and meet the needs of our customers, we chose airfreight over ocean vessel for a significant portion of our assortment, taking on extreme transitory costs. We're disappointed in the short-term impact on earnings, but we made the choice to invest in our customer promise and build loyalty that will help sustain growth over the long-term. Katrina will go into greater detail on our mitigation efforts later.
Overall, we continue to believe the scale of our supply chain is the material advantage. We have deep relationships with our manufacturers across multiple countries of origin optimized for costs, speed and expertise, and we have strong transportation partners offering speed advantage in industry-leading rate. That said, learnings from this crisis will not go to waste. We're using them as an opportunity to accelerate digitization efforts that were already underway across our product to market process. There was a sizable increase in the enterprise clock feed on transformative initiatives as we combated the current crisis with an eye on a better future faster.
For example, we're adding supply chain capabilities that will allow us to better anticipate the unexpected. We've made significant progress digitizing core operating processes with a targeted focus on inventory management, loyalty and personalization. And we're transforming product creation by using digital tools to unlock speed and efficiency. All of this work will pay forward in 2022 and beyond. These near-term pressures have not distracted us from our core strategy. We have an acute focus on what really matters, our unique ownable assets. It's because of the simple, consumable and executable strategy we shared in October of last year, our Power Plan 2023, the Gap Inc. is in a stronger, more resilient position today than we were entering this fiscal year. Even in the face of current headwinds, I'm confident this is true. Our brands are healthy. Demand for our product is strong and we have pricing power with average unit retail contributing to the highest gross margins in over a decade. We are becoming digitally-led. Online sales grew 48% in the quarter compared to 2019, representing 38% of total sales, and our migration to the cloud has unlocked innovation in our tech portfolio.
We will strategically shed an estimated $1 billion in sales by year end versus 2019 by closing unproductive stores, divesting smaller brands and partnering our European business to drive focus and profitability. Nearly three quarters of active customers are loyalty shoppers and they are spending twice as much as non-loyalty customers. And we have fortified our strong balance sheet by restructuring long-term debt, allowing us to invest for growth while continuing to return cash to shareholders.
To our team and partners around the world, thank you. I have watched you navigate, persevere and accelerate through these near-term challenges, while executing our long-term strategy. Despite the supply chain disruption, comp sales were up 5% on a two-year basis with three of our four brands delivering positive two-year comps. Net sales were down 1% to 2019, which includes an estimated 8% point impact due to supply chain headwinds. Our strategy is on track and is working.
Let me walk you through how our Power Plan came to life in Q3. Starting with the power of our brand. Each of our billion dollar brands is finding new and relevant ways to expand reach and cut through to the consumer. This is driving an increase in brand power and a decrease in discounting. Let me start with Old Navy. Old Navy delivered 8% sales growth versus 2019, a deceleration from the first half as the brand was disproportionately affected by inventory lateness during the quarter. Old Navy maintained its number one rank in kids market share according to NPD and sustained its kids and baby growth trend from the first half with strong back-to-school performance. BODEQUALITY, Old Navy's inclusive sizing integration launched successfully in August. The brand more than doubled its extended size customer filed since launch. 15% of customers who shop extended sizes are new to the brand and more than a third have shopped Old Navy before that are new to the category. We are seeing strong extended size demand across fashion categories, a clear signal that our customer is craving trend choice lacking in the market.
Moving to Gap. The momentum continues at Gap brand, particularly North America with comparable sales up 13% versus 2019 and net sales nearly flat despite the almost 18 percentage points of revenue we shed through strategic store closures. This marks the third consecutive quarter of positive comparable two-year sales growth in North America as Gap brand improves the core health of the business from tighter assortments and better quality product to an increase in digital penetration and lighter and brighter stores. Gap reached a critical milestone in our Power Plan, concluding its strategic review of the European market, driving a more profitable business model by shuttering our UK stores and working with local partners to amplify growth. We have identified strong partners in the UK, Ireland, France and Italy and together are committed to serving and growing our Gap customers in Europe. Our new Yeezy Gap icon, the perfect hoodie, delivered the most sales by an item in a single day in gap.com history. With over 70% of Yeezy Gap customers shopping with us for the first time, this partnership is unlocking the power of a new audience for Gap. Gen Z plus Gen X-Men from diverse background.
Next, Banana Republic. We've successfully launched new brand positioning focused on accessible luxury. Through unique storytelling and omni experiences, the brand is going back to its roots, igniting the adventure in all of us. Banana Republic reported a net sales decline of 18% versus 2019 and a negative 10% two-year comp. Like Gap, we walked away from about 10 percentage points of unprofitable revenue due to strategic store closures. Product margins expanded during the quarter as luxury products like merino, leather, cashmere and silk resulted in increased average transaction, drawing higher value customers willing to pay for great quality.
And finally, Athleta, delivered an outstanding quarter with 48% net sales growth versus 2019, using its unique and ownable mission to empower women and girls through the power of She. The brand is investing in new touch points that increased awareness and drove new customer acquisition, which has more than doubled versus Q3 2019. Athleta grew brand awareness to 33% versus 27% last year according to YouGov by embracing celebrity partnerships Simone Biles and Allyson Felix, who took to the world stage in Tokyo. The brand expanded into Canada with the launch of its online business in its first company operated store in Vancouver, in Toronto. And customers are quickly embracing Athleta well. Their new immersive digital community rooted in Wellbeing with the active user base growing 50% every month since launch. We believe this platform has tremendous potential over the coming years to revolutionize how we monetize ownable brand experiences.
Next, the power of our platform and portfolio. We leveraged our size and scale to drive advantage for our four purpose-led billion dollar brand. Our leading omni platform provides customer convenience an engaging experiences whether in-store, on mobile or through curb side pickup. Our online sales grew 48% in the quarter compared to 2019 and we maintained our rank as number two in US apparel e-commerce sales. Our sizable active customer files stood at 64 million and those customers are spending more on average than they were two years ago. But the more important is that the health of our customer file is improving. Compared to 2019, newly acquired customers are spending more with us than our existing customers with increased average transactions, average unit retail and basket size. We're pleased with the launch of our integrated rewards program and our ability to build customer lifetime value.
Now with more than 45 million members, our loyalists are 2 times more likely to shop across brands and 3 times more likely to shop across channels. We feel our brands through our scale technology advantage operation. We are investing capital to drive growth, reduce costs and increase speed and agility. To diversify the strength in our business, we're also seeding new capabilities that will unlock additional value. For example, we acquired Draper, which we expect will power new e-commerce tools with 3D fit technology and we acquired CB4, a machine learning and AI Acquisition with broad potential across sales, inventory and consumer insights. We have plans to scale these solutions in 2022 to build our core digital capability. This will help our brands lower return, boost in-stock levels, increase margins and deliver better customer experiences online and in-stores across all four brands.
The power of our portfolio comes to life through our leadership in key categories. Our strong Active and Fleece business and our Denim business are expected to generate revenues of $4 billion and $2 billion respectively this year. And our Kids and Baby business owns 9% market share across Old Navy, Gap and Athleta. Even as occasions and wear-to-work categories have strengthened, its clear comfort and style will sustain. We're extending our customer reach across every age, body and occasion from value to premium through category expansion and new addressable markets. We can test and pilot in one brand and then leverage learnings to scale across the rest. For example, starting our inclusive sizing rollout in Athleta and scaling at Old Navy with BODEQUALITY or using Old Navy, Gap and Banana Republic's strong presence and infrastructure in Canada to enable Athleta's quick and seamless entry into the market. It's a collective power of our brands that gives us scale advantage.
We continue to innovate in sustainable sourcing with a focus on empowering women, enabling opportunity and enriching communities. Every industry will be impacted by climate change and we are doing our part to mitigate this impact, both at our supply chain and on the communities where we operate. Earlier this month, the USAID Gap Inc. Women + Water Alliance announced that we have empowered 1 million people to improve their access to clean water and sanitation, already halfway to our goal of reaching 2 million by 2023.
Looking ahead, we anticipate robust apparel and accessory retail sales across the industry for the remainder of the year and into the next. That said, we are balancing the favorable consumer climate against current supply constraints. As I mentioned earlier, we are doing everything we can to improve our on-hand inventories versus fall, and still we remain cautious given the current environment.
One last thought before I hand it over to Katrina. While the near-term headwinds and resulting impacts on our performance are difficult, we remain focused on executing our strategy for long-term sustainable growth. We are focused on what matters, demand-generating investments in our billion dollar brand fueled by cut-through creative, deploying data and science to drive efficiency in the way we work and restructuring our business to reduce cost. All of this allows us to emerge from the crisis, growing share, increasing brand health and delivering profitable growth long-term.
With that, I wish you and your families happy Thanksgiving. Katrina?
