Gap GPS 2023 Q1 Earnings Report

The Gap logo is on display at the Gap store on April 25, 2023 in Los Angeles, California.

Mario Tama | Getty Images

Gap reported another quarter of net losses and lower sales for four brands but the retailer insisted that it had made progress and was able to improve its margins significantly.

Here’s how the clothing retailer fared in the first fiscal quarter compared to what Wall Street expected, according to a survey of analysts conducted by Refinitiv:

  • Earnings per share: 1 cent, adjusted (it was not immediately clear whether this was comparable to estimates)
  • Income: $3.28 billion vs. expected $3.29 billion

For the three-month period ending April 29, the company posted a loss of $18 million, or 5 cents per share, compared to a loss of $162 million, or 44 cents per share, a year earlier. On an adjusted basis, the company reported earnings for the period of $3 million, or 1 cent per share.

Sales fell to $3.28 billion, down 6% from $3.48 billion a year earlier.

The company’s shares jumped more than 16% after hours.

Gap, which includes namesake brands Old Navy, Banana Republic and Athleta, has been without a CEO for nearly a year as it works to restructure its business, understand its customers better and return to profitability.

The company said the work is well under way, but acknowledged it was long overdue. While the company knew what the solutions were, he said, those fixes were delayed or delayed too long and too many times.

Last month, he told investors he would lay off about 1,800 employees, more than three times the 500 layoffs announced in September, as part of a broad effort to cut costs and streamline operations.

Between this and last year, the company cut 25% of its positions at headquarters, increasing the number of direct reports per manager from 2 to 4 and reducing management levels from 12 to 8, the company said.

The cuts remove layers of bureaucracy and bureaucracy, allowing Gap to be more flexible in its decision making and focus on its creative efforts, the company said.

The company also announced a major leadership reshuffle in March. Athleta CEO Mary Beth Lawton left the company and her position as director of development was abolished. Gap announced that its chief human resources officer, Sheila Peters, would also leave, albeit at the end of the year.

In the most recent quarter, like-for-like sales were down 3% and in-store sales were down 4% year-over-year.

Online sales, which account for 37% of total net sales, also fell 9% year-on-year, but the company said this is because sales trends are becoming more in line with what has historically been normal since the pandemic. Covid has led to an industry-wide surge in e-commerce. . Digital sales have risen “significantly” to pre-pandemic levels, the company said.

Last year, many retailers were still struggling with pandemic-related supply chain issues, and this left Gap with an oversupply of items they had a hard time selling because they were out of season or out of style.

Many, like Gap, have relied on promotions to clear that inventory, especially at Old Navy, but in the last quarter, the company was able to hold onto a discount queue and benefit from lower air travel costs, resulting in higher margins for retailers. throughout the industry.

Year-on-year, gross margin increased by 5.6 percentage points from last year to 37.1%. They also improved consistently from last quarter, where margins were 33.6%.

The company attributed the increase in margins to lower air travel costs and slower discounting, which was partly offset by continued inflationary costs.

Gap also continues to improve its inventory levels, which fell 27% in the quarter to $2.3 billion year-over-year.

How Gap Brands Succeeded

  • old fleet, which accounts for the majority of Gap’s revenue, net sales fell 1% to $1.8 billion, while like-for-like sales were down 1%. Sales were strong in the women’s category, but gains were offset by the softness of outdoor and children’s products, as well as the continued slowdown in consumer demand. Old Navy, which caters to low-income consumers, is more vulnerable to macroeconomic conditions.
  • Gap reported sales of $692 million, down 13% year-over-year, with like-for-like sales up 1%. Similar to Old Navy, the eponymous banner also showed strength in the women’s category and softness in the active and children’s categories. Sales were also impacted by the closure of Gap stores, the company said.
  • Banana republic sales were $432 million, down 10% from last year. The company attributed the drop to an “excessive” 24 percent jump in sales from last year, which was driven by changing consumer preferences as many returned to work and left home following the Covid lockdown. Like-for-like sales fell 8%.
  • Sportswoman still untrue when it comes to what consumers are looking for. Net sales decreased to $321 million, down 11% year-over-year, while like-for-like sales were down 13%. The drop in sales was due to persistent issues with product acceptance.

For its brands, Gap conducts research to better understand its consumers so they can deliver the products they want, regain market share, and reverse sales declines.

Gap’s full-year forecast is almost unchanged from its March forecast. The company expects second-quarter net sales to decline in the mid-to-high single digit range.

For the full year, the company continues to expect net sales to decline in the low to mid-digit range.

The prospects were partly affected by the sale by Gap China. In the second quarter of fiscal year 2022, Gap China posted net revenue of $60 million, and in fiscal year 2022 it posted $300 million.

Fiscal 2023 will also see its 53rd week, which is expected to increase sales by $150 million.

The company expects gross margins to continue rising and capital expenditures to fall to $500-525 million from the previous range of $500-550 million. The drop is driven by a decision to open about 5 fewer Old Navy and Athleta stores during the fiscal year.

Read complete income statement.

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