The Gap logo will be displayed at the Gap store in Los Angeles, CA on April 25, 2023.
Mario Tama | Getty Images
gap Further quarterly net loss and sales decline reported across four brands But the retailer claimed to be making progress and managed to improve its profit margins so much that the stock surged in after-hours trading.
Here’s how apparel retailers’ first quarter performance compares to Wall Street expectations, based on Refinitiv’s survey of analysts.
- Earnings per share: 1 cent adjusted, expected loss of 16 cents
- Earnings: $3.28 billion vs. $3.29 billion expected
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The company’s net loss for the three months ended April 29 narrowed to $18 million, or 5 cents per share, from $162 million, or 44 cents per share, in the same period last year. On an adjusted basis, the company reported earnings of $3 million, or 1 cent per share.
Revenue was $3.28 billion, down 6% from $3.48 billion a year earlier.
Shares rose more than 15% in after-hours trading on improved gross margins.
Gap, which includes eponymous brands Old Navy, Banana Republic and Athleta, has been without a CEO for nearly a year as it restructures its business, better understands its customers and tries to restore profitability.
The retailer said work was progressing well and admitted it had been needed for a long time.
“Consistent with what we have heard over the past several quarters, we will continue to drive significant changes at Gap Inc. to further improve the trajectory of our business and return it to a servicing trajectory. Consistent results,” interim CEO Bobby Martin told investors on an earnings call.
“I understand that we’ve brought these issues to the surface before, but I’m just saying that this effort has stalled for too long and we’re serious about it,” he said. It’s essential,” he said.
Gap last month announced to investors it would cut about 1,800 jobs, more than triple the 500 it announced in September, as part of a broader effort to cut costs and streamline operations. .
The company said it cut the role of headquarters by 25% this year and last year, increased the number of direct reports for each manager from two to four, and reduced the number of managers from 12 to eight.
The job cuts will remove red tape and bureaucracy, allowing Gap to make more agile decisions and focus on creative endeavors, the company said.
In March, the company also announced a major executive overhaul. Athleta CEO’s girlfriend, Mary Beth Laughton, is leaving the company, along with her role as chief growth officer. Gap also announced that its chief human resources officer, Sheila Peters, will also step down, albeit at the end of the year.
During an earnings call with investors, Martin said the search for a new CEO is ongoing, but did not give a timeline for when the position would be filled.
“When I took over as interim CEO in July, I didn’t expect to be able to speak on the company’s first quarter earnings call just yet,” Martin said. “But this shows how strongly the board is committed to appointing the right person as our next CEO – someone who has the passion, strong vision and obsession with the customer to move this company forward. It’s just an emphasis.”
Mr. Martin has previously said that the next chief executive will be an outside candidate.
In the most recent quarter, comparative sales were down 3% and store sales were down 4% year-over-year.
Online sales, which accounted for 37% of total net sales, were also down 9% year-over-year, but the company said that was because sales trends were becoming more in line with pre-pandemic metrics. However, the company added that digital sales were up 39% compared to the first quarter of 2019.
In the same period last year, many retailers still struggled with pandemic-related supply chain issues, landing in a gap with excess inventory that the company struggled to sell due to out-of-season or out-of-fashion trends.
Gap, like other retailers, has relied on promotions to clear inventory, especially at Old Navy, but in the most recent quarter it managed to keep up with discounted pricing and benefited from lower airfares. rate improved. industry-wide retailers.
Gross margin increased 5.6 percentage points year-over-year to 37.1%, improving from 33.6% in the prior quarter.
The company attributed higher profit margins to lower airfares and slower discounting, but said it was partially offset by ongoing inflation costs.
How the Gap brand succeeded
- old navyThe company’s net sales, which account for most of Gap’s revenue, fell 1% to $1.8 billion, with similar sales also down 1%. Strong sales in women’s and baby categories were offset by weaker active and kids categories and continued slowdown in consumer demand. Old Navy targets low-income consumers, making it vulnerable to macroeconomic conditions.
- gap ‘s sales were $692 million, down 13% year-over-year and up 1% in comparable sales. Like Old Navy, the eponymous banner expressed strength in the women’s and baby categories and softness in the activewear and kids categories. Gap store closures also impacted sales, according to the company.
- banana republic Sales were $432 million, down 10% from the prior year. The company attributed the decline to a “significant” 24% increase in sales in the same period last year, driven by changing consumer preferences as more people returned to work and outings after the coronavirus lockdown. It is said that Comparable sales were down 8%.
- Athleta It still misses the point when it comes to what consumers want. Net sales fell 11% year-over-year, he fell to $321 million, and similar sales fell 13%. The drop in sales is attributed to ongoing product acceptance challenges, including ‘failures’ in colors, prints, patterns and silhouettes, as well as deviations from the brand’s ‘performance DNA’.
Gap also continued to improve its inventory levels, which fell 27% year over year to $2.3 billion in the quarter.
Katrina O’Connell, head of finance at Gap, said the company is still running promotions and discounts, but it’s cleared inventory so its margins aren’t as low as they are today.
“With the reduction in inventory, we’ve been able to wipe out the markdown part of the business, which doesn’t add much customer value, right? Excess inventory, selling through the wrong inventory,” O’Connell said on the earnings call.
“We benefited from sweeping price cuts and because of that, what we can continue to do is promote, which is a better way to deliver value to consumers, and this remains important at this time.”
Across brands, Gap has conducted research to better understand consumers, deliver the products they want, regain market share and reverse sales declines.
Gap’s outlook for the full year remains largely unchanged from the guidance it gave in March. The company expects second quarter net sales to decline in the mid to high single digits.
For the full year, the company expects net sales to continue to decline in the low to mid-single digit range.
The outlook is partly affected by the company’s sale of Gap China. Net sales in the second quarter of fiscal year 2022 included $60 million from Gap China and $300 million in fiscal year 2022.
Fiscal year 2023, which includes Week 53, is expected to add $150 million in sales.
Gap expects gross margins to continue to improve and capital expenditures to decline to $500 million to $525 million, compared to the previous range of $500 million to $550 million. The decline is due to the company’s decision to open about five fewer Old Navy and Athleta stores during the fiscal year.
The company plans to open a net 25 to 30 Old Navy and Athleta stores this fiscal year, one-third of which will be Old Navy. It plans to close 50 to 55 Gap and Banana Republic outposts, more than half of which will be in Gap.
read full earnings release.