Key things
- Gap posted a surprise profit as turnaround efforts and lower costs improved margins.
- The retailer benefited from the drop in air freight costs.
- Promotions helped Gap reduce inventory.
Space (GPS) shares jumped 12.5% on Friday as the apparel retailer reported a surprise profit and said margins improved thanks to its restructuring efforts and lower shipping costs.
The operator of Gap, Old Navy, Banana Republic and Athleta stores reported earnings per share of $0.01 for the first quarter of fiscal 2023. Analysts had expected a loss of $0.16. Revenue fell 5.8% to $3.28 billion, just short of expectations. Comparable store sales decreased by 3%.
CEO Bob Martin said the company continues to “take the necessary actions to manage the critical changes at Gap Inc. that will ultimately put us back on track to deliver consistent long-term results.”
He noted that Gap’s adjusted operating margin jumped 610 basis points (bps) a year ago, driven by “significantly improved gross margin” from reductions in airfreight costs and promotional activities, as well as cutbacks selling, general and administrative (SG&A) expenses.
CFO Katrina O’Connell added that Gap has reduced inventory by 27% from 2022 and will close about 350 underperforming Gap and Banana Republic locations by the end of the year. In addition, she explained that the company plans to open fewer stores this year than expected.
Gap reaffirmed its full-year net sales outlook for a decline in the low- to mid-single-digit percentage range.
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