Gap (GPS) revenue Q3 2022

Holiday shoppers participate in early Black Friday shopping deals at the Gap store in Times Square in New York.

Brendan McDermid | Reuters

gap on Thursday beat Wall Street’s quarterly sales expectations but gave a cautious outlook ahead of the holiday season.

The apparel retailer — which owns the eponymous brand Old Navy, Banana Republic and Athleta — said it expects its total net sales in the fourth quarter of fiscal 2022 could decline by a mid-single-digit year-on-year.

Chief Financial Officer Katrina O’Connell said in a press release that while the company has made progress in reducing its bloated inventories, it “will continue to take a prudent approach given the uncertain consumer and increasing advertising environment as we look to the remainder of the fiscal year.” 2022.”

Shares of the company rose about 8% in extended trading on Thursday. The stock is down 27% so far this year to close at $12.72 on Thursday, up more than 5% during the session.

This is how the retailer performed during the Three month period ended October 29th:

  • Earnings per share: Adjusted 71 cents
  • Revenue: $4.04 billion versus $3.8 billion expected, according to Refinitiv consensus estimates.

Wall Street expected Gap to break even per share, but it wasn’t clear if reported earnings per share were comparable to estimates.

Gap’s net income rose to $282 million, or 77 cents a share on an unadjusted basis, a dramatic improvement over a net loss of $152 million, or 40 cents a share, in the year-ago period. Revenue increased 2% to $4.04 billion from $3.94 billion in the same quarter of 2021.

In August gap withdrew its forecast for the full year, citing company-specific struggles along with high inflation and lower consumer sentiment.

After that, the company is looking for a new CEO Sonia Syngal left this summer and play out a high-profile split of the Yeezy brand from Yes. Ye, formerly of Kanye West, terminated his contract with Gap in September citing what he called breaches of contract and a lack of creative control. gap removed all Yeezy products from its stores In late October, after West made public anti-Semitic statements.

Gap announced Thursday that it had incurred $53 million in impairments related to Yeezy Gap.

Comparable sales

Comparable sales for the entire company, which tracks sales online and in stores open for at least 12 months, increased 1% compared to the year-ago period. Analysts had expected comparable sales to fall 3.2%, according to StreetAccount estimates.

Online sales increased 5% year over year and accounted for 39% of total net sales.

Here’s a closer look at each area:

  • Gap’s eponymous brand, known for denim and basics: Comparable sales increased 4% worldwide and were flat in North America. The company said it was in better shape with inventory but had weaker sales in the kids and babies categories.
  • Old Navy, known for casual wear for adults and children: Comparable sales decreased 1%. The brand saw weaker demand for baby and children’s clothing and was hurt by low-income consumers who felt overwhelmed by inflation.
  • Banana Republic, known as a suit and dress destination: Comparable sales increased 10%. It’s looking for a new direction after the pandemic disrupted the typical fashion routine – leading to more people working from home a few days a week and dressing more casually on the days they go to the office.
  • Athleta, an activewear brand: Comparable sales were flat as shoppers shifted towards buying more occasion and work outfits. The store comes at a time when Americans are eagerly stocking up on stretchy leggings, workout tops and other comfy loungewear when spending time at home.

The retailer also changes its store presence based on the banners growing or shrinking. So far this year, the company has closed a total of 29 Gap and Banana Republic stores in North America, O’Connell said when speaking to investors. It is now expected to close about 30 additional stores this year, as part of the goal to close 350 stores in North America by the end of fiscal 2023.

She said the company is on track to open a total of 30 Athleta stores and now plans to open 10 Old Navy stores by the end of this fiscal year.

inventory improvements

The retailer is struggling with a flood of garments that are out of season, out of style or the wrong size.

Has bloated inventory become a problem for many retailers, including gap. A year ago, Gap struggled to keep up with demand, as factories were temporarily closed due to Covid and goods were stuck in congested ports. The retailer even went so far as to pay extra to have clothes flown in by air. But delays and backlogs meant some seasonal goods were still late arriving.

Inventories have been piling up over the past few quarters as consumers seek smarter clothing rather than casual wear. Gap’s inventories rose 34% in the first quarter and 37% in the second quarter. Gap was forced to offer deep discounts, which hurt profits.

At the end of the third quarter, inventories were up 12% as the company continued to package and store goods to sell at another time. The company also saw a higher proportion of slow-moving basics and some leftover seasonal produce, O’Connell said.

She said the company is “committed to cleaning up our inventories so we don’t carry the excess inventory into next year.”

Old Navy has a more specific inventory issue: The Division decided to offer more womenswear in plus sizes, But the move resulted in stores having too many expanded sizes and not enough popular sizes. Gap said Thursday that Old Navy made progress improving size balance in the third quarter, which boosted sales.

Retailers' inventory struggles are expected to hurt profits

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