Gap (GPS) reports financial results for the second quarter of 2022

An employee hands a customer a shopping bag at an Old Navy store in San Francisco.

David Paul Morris | Bloomberg | Getty Images

Gap Inc. on Thursday withdrew its financial outlook for the year after it swung to a net loss in the second quarter and the Old Navy chain continued to struggle with the wrong mix of sizes and styles.

The San Francisco-based company, which is in the process of finding a new CEO, cited its recent execution challenges and uncertain macroeconomic trends for pulling back its guidance for 2022. Decades of high inflation are hurting low-income consumers who are among the core customers of some of the company̵[ads1]7;s brands .

“In the near term, we are taking steps to sequentially reduce inventory, rebalance our assortments to better meet changing consumer needs, aggressively manage and reassess investments and strengthen our balance sheet,” CFO Katrina O’Connell said in a news release. release.

For the three-month period ended July 30, the retailer reported a net loss of $49 million, or 13 cents per share. A year earlier, it reported net income of $258 million, or 67 cents per share.

Excluding one-time items, the company earned 8 cents per share.

Gap’s revenue for the period fell 8% to $3.86 billion from $4.2 billion a year earlier. That topped estimates for $3.82 billion, according to a Refinitiv survey. Shares in Gap rose 7% in extended trading.

Online sales fell by 6%, representing 34% of total sales.

Comparable sales, which track revenue online and at stores open at least 12 months, were down 10% from a year ago. That included a 15% decline at Old Navy, which the company said was hit by inventory delays, “problems with product acceptance” in key categories and reduced demand among lower-income customers.

At the company’s namesake Gap banner, global comparable sales fell 7%, due in part to ongoing and planned store closings.

Comparable sales at Athleta were down 8%, and the company noted a shift in consumer preferences from leisure to work-based categories. At Banana Republic, comparable sales increased 8%, reflecting the retailer’s investments in quality and changing consumer trends.

Gap said in prepared remarks that it is beginning to see an improvement in sales trends in July and into August, coinciding with a drop in gas prices. However, the company is not offering a forecast for the full fiscal year due to ongoing uncertainty surrounding consumer behavior and promotions at other retailers.

The company ended the most recent quarter with $3.1 billion in inventory, up 37% from a year earlier. Some of this was intentionally packed away to be sold in another season, and some of it is still in transit, Gap said.

As part of cost-cutting efforts, the company said it was reducing the number of new Old Navy stores it planned to open in the back half of the year.

“While our high inventories and squeezed margins are current realities against uncertain market conditions, they do not define our ability to leverage Gap Inc.’s strengths to win,” said Gap Interim CEO Bob Martin, who is also executive chairman.

Gap’s former CEO Sonia Syngal abruptly stepped down from the role in July. The company also recently named a new leader for its Old Navy division.

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