Gap GPS Q1 2023 Earnings Report

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

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Gap posted another quarter of net losses and lower sales through its four brands but the retailer insisted it was making progress – and had 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 an analyst survey by Refinitiv:

  • Earnings per share: 1 cent, adjusted, vs. loss of 16 cents, expected
  • Income: $3.28 billion vs $3.29 billion expected

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

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

Shares of the company jumped more than 12% after hours trading.

Gap – which includes its eponymous brand, Old Navy, Banana Republic and Athleta – has been without a CEO for nearly a year as it struggles to restructure the business, better understand its consumers and return to profitability.

The company said work was well advanced, but acknowledged it was long overdue. Although he knew what the solutions were, those fixes were delayed or derailed too long and too often, 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 headquarters positions, increasing the number of direct reports for each manager from 2 to 4 and reducing management levels from 12 to 8, it said. the society.

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

In March, he also announced a major management reshuffle. Athleta CEO Mary Beth Laughton has left the company and her role as chief growth officer has been eliminated. Gap announced that its director of human resources, Sheila Peters, would also leave, but at the end of the year.

In its most recent quarter, same-store sales were down 3% and store sales were down 4% from a year ago.

Online sales, which made up 37% of total net sales, also fell 9% year-on-year, but the company said that was because sales trends were aligning more with what which was historically normal after the Covid pandemic led to an industry-wide leap. in e-commerce. Digital sales increased “significantly” from pre-pandemic levels, the company said.

A year ago, many retailers were still struggling with pandemic-related supply chain issues and that left Gap with a glut of inventory they were struggling to sell because they were out of season. or outdated.

Many, like Gap, relied on promotions to eliminate that inventory, especially at Old Navy, but in its final quarter it was able to hold the line on discounts — and benefit from reduced airfreight spending. which has led to better margins for retailers. across the industry.

Year-over-year, gross margins increased 5.6 percentage points year-over-year to 37.1%. They have also improved sequentially since its last quarter when margins were 33.6%.

The company attributed the higher margins to lower airfreight spending and a slowdown in discounts, which were partially offset by continued inflationary costs.

Gap also continues to improve inventory levels, which were down 27% in the quarter to $2.3 billion from the same period last year.

How Gap’s brands fared

  • Old Navy, which accounts for the majority of Gap’s revenue, saw net sales fall 1% to $1.8 billion and comparable sales down 1%. Sales were strong in its women’s category, but the gains were offset by weak activity and children and a continued slowdown in consumer demand. Old Navy, which caters to a low-income consumer, is more vulnerable to macroeconomic conditions.
  • Gap reported sales of $692 million, a 13% year-over-year decline and a 1% increase in comparable sales. Similar to Old Navy, the eponymous banner also saw strength in its women’s category and softness in assets and children. Sales were also impacted by Gap store closures, the company said.
  • banana republic recorded sales of $432 million, down 10% year-over-year. The company attributed the decline to an “outsized” 24% increase in sales in the period a year ago, which was driven by a shift in consumer preferences as many returned to work and exited after Covid closures. Comparable sales were down 8%.
  • Athlete still misses the mark when it comes to what consumers are looking for. Net sales fell to $321 million, down 11% year over year, and comparable sales were down 13%. The decline in sales was attributed to continued product acceptance challenges.

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

The Gap’s outlook for the full year remained largely unchanged from the guidance it gave in March. The company expects second quarter net sales to decline in the mid to high single digit range.

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

The outlook is partly affected 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.

Fiscal 2023 will also include a 53rd week, which is expected to boost sales by $150 million.

The company expects gross margin to continue to increase and capital expenditure to decline to between $500 million and $525 million, down from a prior range of $500 million to $550 million. The decrease is due to the decision to open approximately 5 fewer Old Navy and Athleta stores during the fiscal year.

Read it full publication of results.


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