Global Courant 2023-05-26 01:53:55
The Gap logo will be displayed at a Gap store in Los Angeles, California on April 25, 2023.
Mario Tama | Getty Images
Hole reported another quarter of net losses and declining sales about the four brands but the retailer insisted it is making progress – and has managed to significantly improve its margins.
Here’s how the apparel retailer fared in its fiscal first quarter compared to what Wall Street expected, based on an analyst survey by Refinitiv:
Earnings per share: 1 cent, adjusted (it wasn’t immediately clear if it was comparable to estimates) Revenue: $3.28 billion versus $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 to a loss of $162 million, or 44 cents per share, in the same period a year ago. On an adjusted basis, the company reported earnings of $3 million, or 1 cent per share, during the period.
Sales fell to $3.28 billion, down 6% from $3.48 billion a year earlier.
Shares of the company rose more than 11% in after-hours trading.
Gap — which includes eponymous Old Navy, Banana Republic, and Athleta brands — has been without a CEO for nearly a year as it worked to restructure the company, better understand its consumers, and return it to profitability.
The company said work is well underway, but acknowledged it was long overdue. While it knew what the solutions were, those solutions have been delayed or derailed for too long and too often, it said.
Last month it told investors it will lay off about 1,800 employees, more than triple the 500 layoffs it announced in September, as part of a broad effort to cut costs and streamline operations.
Between this year and last year, the company cut 25% of its headquarters positions, increasing the number of direct reports per manager from 2 to 4 and cutting management tiers from 12 to 8, the company said.
The cuts remove layers of red tape and bureaucracy allowing Gap to be more agile in its decision-making and focus on its creative endeavors, the company said.
In March, it also announced a major shakeup. Athleta CEO Mary Beth Laughton left the company and the role of Chief Growth Officer was abolished. Gap announced that its chief people officer Sheila Peters would also leave, albeit at the end of the year.
In the most recent quarter, comparable store sales were down 3% and retail sales were down 4% compared to last year.
Online sales, which represented 37% of total net sales, also declined 9% year over year, but the company said this is because sales trends are moving more in line with historically normal after the Covid pandemic led to an industry-wide leap in e-commerce. Digital sales have increased “significantly” to pre-pandemic levels, the company said.
As of last year, many retailers were still dealing with pandemic supply chain issues and it left Gap with an overabundance of inventory that they struggled to sell because it was out of season or out of fashion.
Many, like Gap, have relied on promotions to clear that inventory, especially at Old Navy, but in its most recent quarter, the company was able to hold onto discounts — and take advantage of lower air freight costs that have led to better margins for retailers across the industry .
On a year-over-year basis, gross margins increased 5.6 percentage points year-over-year to 37.1%. They also improved sequentially from the last quarter, when margins were 33.6%.
The company attributed the increase in margins to lower air freight costs and a slowdown in rebates, which were partially offset by ongoing inflationary costs.
Gap also continues to improve its inventory levels, which fell 27% in the quarter to $2.3 billion compared to the same period last year.
How Gap’s brands fared
Old Navy, which accounts for the bulk of Gap’s sales, saw net sales fall 1% to $1.8 billion and comparable sales fell 1%. Sales were strong in the women’s category, but gains were offset by weakness in active and kids and a continued slowdown in consumer demand. Old Navy, which targets lower-income consumers, is more vulnerable to macroeconomic conditions. Gap reported sales of $692 million, down 13% year-over-year and up 1% in comparable sales. Similar to Old Navy, the eponymous banner also saw strength in its women’s category and softness in active and kids. Sales were also impacted by the closure of Gap stores, the company said. Banana Republic saw sales of $432 million, down 10% year-over-year. The company attributed the drop to an “extraordinary” 24% increase in sales over the period last year, which was driven by a shift in consumer preferences as many returned to work and went out after Covid lockdowns. Comparable store sales decreased by 8%. Athleta still falls short when it comes to what consumers are looking for. Net sales fell to $321 million, down 11% year-over-year, and comparable store sales declined 13%. The sales decline was attributed to ongoing product adoption challenges.
Gap has conducted research across all brands to better understand consumers so it can deliver the products it wants, regain market share and reverse the sales slump.
Gap’s full-year outlook was largely unchanged from the forecast it gave in March. The company expects second-quarter net sales to fall into the mid- to high-single digit range.
For the full year, it still expects net sales to fall in the low to mid-single digit range.
The outlook is partially impacted by the company’s sale of Gap China. In fiscal Q2 2022, Gap China’s net sales included $60 million, and in fiscal 2022, it included $300 million in sales.
Fiscal 2023 will also include a 53rd week, which is expected to boost sales by $150 million.
The company expects gross margin to continue to grow and capital expenditures to decrease to $500 million to $525 million, compared to a previous range of $500 million to $550 million. The decline is due to a decision to open approximately 5 fewer Old Navy and Athleta stores during the fiscal year.
Read the release full earnings.
