Gap GPS First Quarter 2023 Earnings Report

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

Mario Tama | Getty Images

loophole reported another quarter of net losses and slumping sales across its four brands, but the retailer insisted it was making progress – and 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 a Refinitiv analyst survey:

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

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

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

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

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

The company said the work is well underway, but acknowledged that it has taken a long time. While he knew what the solutions were, those fixes had been delayed or derailed too long and too many times, he said.

Last month, it told investors it 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 year and last year, the company cut 25% of its roles at headquarters, which increased the number of direct reports each manager has from 2 to 4 and reduced layers of management from 12 to 8, the company said.

The cuts remove layers of bureaucracy and bureaucracy that will allow Gap to be more agile in its decision-making and focused on its creative efforts, the company said.

In March, it also announced a major leadership change. Athleta CEO Mary Beth Laughton has left the company and her role as Director of Growth has been eliminated. Gap announced that its chief human resources officer, Sheila Peters, would also be leaving, albeit at the end of the year.

In its most recent quarter, comparable sales were down 3% and store sales were down 4% year-over-year.

Online sales, which made up 37% of total net sales, were also down 9% year-over-year, but the company said this is because sales trends are getting more in line with what is historically normal after the Covid pandemic took its toll. to an industry-wide leap in e-commerce. . Digital sales increased “significantly” to pre-pandemic levels, the company said.

In the prior year period, many retailers were still struggling with pandemic-related supply chain issues and this left Gap with an excess of inventory that they had trouble selling because it was out of season or out of style.

Many, like the Gap, have relied on promotions to clear that inventory, particularly at Old Navy, but in its most recent quarter, it was able to maintain the discount line-up – and benefit from reduced air freight expenses that led to better margins for its customers. retailers across the industry.

Year-over-year, gross margins increased 5.6 percentage points year-over-year to 37.1%. They also improved sequentially from the last quarter, where margins were 33.6%.

The company attributed the increase in margins to lower air freight expenses and a slowdown in discounts, which were partially offset by continued inflationary costs.

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

How Gap Brands Fared

  • old navy, which accounts for most of Gap’s revenue, saw net sales decline 1% to $1.8 billion, and comparable sales declined 1%. Sales were strong in the women’s category, but gains were offset by softness in actives and children’s and an ongoing slowdown in consumer demand. Old Navy, which caters to a low-income consumer, is more vulnerable to macroeconomic conditions.
  • loophole recorded $692 million in sales, down 13% year-over-year and up 1% in comparable sales. Similar to Old Navy, the eponymous flag also saw strength in its women’s category and softness in active and children’s. Sales were also impacted by Gap store closures, the company said.
  • banana republic saw $432 million in sales, down 10% year-over-year. The company attributed the drop to an “outsized” 24% jump in sales in the year-ago period, driven by a shift in consumer preferences as many returned to work and left following the Covid lockdowns. Comparable sales were down 8%.
  • Athlete it’s still missing the mark when it comes to what consumers are looking for. Net sales were down to $321 million, down 11% year-over-year, and comparable sales were down 13%. The drop in sales was attributed to continued product acceptance challenges.

Across all of its brands, Gap has been conducting research to better understand its consumers so it can deliver the products they want, regain market share and reverse slumping sales.

The Gap’s full-year outlook was broadly unchanged from its March forecast. The company expects second-quarter net sales to decline in the mid-to-high single digits.

For the full year, continue to expect net sales to fall into the low to mid single digits.

The outlook is partially impacted by the company’s sale of Gap China. In the second quarter of fiscal 2022, net sales included $60 million from Gap China, and in fiscal 2022, it included $300 million in sales.

The 2023 fiscal year will also include a 53rd week, which is expected to increase sales by $150 million.

The company expects gross margin to continue to increase and capital expenditures to decline to $500 million to $525 million, compared to the previous range of $500 million to $550 million. The drop is driven by the decision to open about 5 fewer Old Navy and Athleta stores during the fiscal year.

Read the full earnings release.

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