The Gap logo is displayed at a Gap store on April 25, 2023 in Los Angeles, California.
Mario Tama | Getty Images
Gap reported another quarter of net losses and declining sales across its four brands but the retailer insisted it was making progress – and managed to improve its margins significantly.
According to a survey of analysts by Refinitiv, the apparel retailer’s performance in its fiscal first quarter compared to what Wall Street expected:
- Profit per share: 1 cent, adjusted (it was not immediately clear if it was comparable to estimates)
- income: $3.28 billion vs. $3.29 billion expected
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For the three-month period ended April 29, the company reported a loss of $18 million, or 5 cents per share, compared with a loss of $162 million, or 44 cents per share, in the year-ago period. On an adjusted basis, the company reported earnings of $3 million, or 1 cent per share, in the period.
Revenue fell to $3.28 billion, down 6% from $3.48 billion a year earlier.
The company’s shares jumped more than 11% in after-hours trading.
Gap — which includes its namesake brand Old Navy, Banana Republic and Athleta — was without a CEO almost a year how it worked to restructure the business, better understand its consumers and return to profitability.
The company said the work was progressing well, but acknowledged it was long overdue. Even when he knew what the solutions were, those fixes were delayed or derailed for too long and too often, he said.
It told investors last month that it had lay off about 1,800 employeesmore than three times as many as 500 layoffs she announced in Septemberas part of a broad effort to reduce costs and streamline operations.
Between this year and last year, the company cut 25% of its headquarters roles, increasing the number of direct reports to each manager from 2 to 4 and reducing the management level from 12 to 8, the company said.
The cuts will remove red tape and red tape, allowing Gap to be more nimble in its decision-making and focus on its creative efforts, the company said.
In March, she also announced a a fundamental coup in leadership. Athleta CEO Mary Beth Laughton has left the company and her role as head of growth has been eliminated. Gap has announced that its chief human resources officer, Sheila Peters, will also be leaving, albeit at the end of the year.
In the most recent quarter, comparable sales fell 3% and same-store sales fell 4% compared to last year.
Online sales, which accounted for 37% of total net sales, also fell 9% year-on-year, but the company said that was because sales trends were increasingly in line with what is historically normal after the Covid pandemic led to an industry-wide leap in e-commerce. . Digital sales rose “significantly” to pre-pandemic levels, the company said.
A year ago, many retailers were still grappling with supply chain issues related to the pandemic, which landed Gap with excess inventory that it struggled to sell because it was out of season or out of style.
Many, like Gap, have relied on promotions to clear that inventory, especially at Old Navy, but it managed to maintain a series of discounts last quarter — and benefit from reduced air freight costs resulting in better margins for retailers across the industry.
Gross margins increased year-on-year by 5.6 percentage points to 37.1%. They also gradually improved from the last quarter, when margins were 33.6%.
The company attributed the margin increase to lower airfreight costs and a slowdown in discounting, which was partially offset by continued inflationary costs.
Gap also continues to improve its inventory, which fell 27% to $2.3 billion in the quarter compared to the year-ago period.
How did the Gap brands do?
- Old Navy, which accounts for the bulk of Gap’s revenue, saw net sales fall 1% to $1.8 billion and comparable sales down 1%. Sales were strong in the women’s category, but gains were offset by softness in actives and kids and a continued slowdown in consumer demand. Old Navy, which caters to lower-income consumers, is more vulnerable to macroeconomic conditions.
- Gap reported revenue of $692 million, a 13% year-over-year decrease and a 1% increase in comparable sales. Similar to Old Navy, the namesake banner also saw strength in the women’s category and softness in active and kids. Sales were also affected by Gap store closures, the company said.
- Banana Republic reported revenue of $432 million, down 10% year-on-year. The company attributed the decline to an “outsized” 24% jump in sales in the year-ago period, driven by a shift in consumer preferences as many returned to work and left after the Covid restrictions. Comparable sales were down 8%.
- Athlete the brand is still missing when it comes to what consumers are looking for. Net sales fell to $321 million, down 11% year-over-year, and comparable sales fell 13%. The decline in sales was attributed to continued problems with product acceptance.
Gap conducted research across its brands to better understand its consumers in order to deliver the products they want, regain market share and reverse sales slumps.
Gap’s full-year outlook was largely unchanged from its March forecast. The company expects second quarter net sales to decline in the mid to high single digits.
For the full year, he continues to expect a decline in net sales in the range of low to mid-single digits.
The outlook is partly influenced by the sale of Gap China. In the second fiscal quarter of 2022, net sales included $60 million from Gap China, and in fiscal 2022, they included $300 million in sales.
Fiscal 2023 will also include a 53rd week, which should add $150 million in sales.
The company expects gross margin to continue to grow and capital expenditures to fall to $500 million to $525 million, compared to a prior range of $500 million to $550 million. The decrease is due to the decision to open 5 fewer Old Navy and Athleta stores during the fiscal year.
Read full release of earnings.
