An employee hands a customer a shopping bag at an Old Navy store in San Francisco.
David Paul Morris | Bloomberg | beautiful pictures
Gap Inc. on Thursday withdrew its financial outlook for the year after a net loss for its fiscal second quarter and its Old Navy chain continues to grapple with the wrong combination of size and style.
The company is headquartered in San Francisco, is in the search for a new CEOcites recent performance challenges and uncertain macroeconomic trends to withdraw guidance for 2022. Decades of high inflation is hurting lower-income consumers who lie among the core customers of some of the company’s brands.
Chief Financial Officer Katrina O’Connell said: “In the short term, we are taking actions to sequentially reduce inventory, rebalance categories to better meet consumer demand. is changing, aggressively managing and re-evaluating investments, while strengthening its balance sheet.”
For the three-month period ending July 30, the retailer reported a net loss of $49 million, or 13 cents per share. A year earlier, the company reported net income of $258 million, or 67 cents a share.
Excluding disposable items, the company earns 8 cents per share.
Gap’s revenue for the period fell 8% to $3.86 billion from $4.2 billion a year earlier. According to a survey by Refinitiv, this topped an estimate of $3.82 billion. Gap shares rose 7% in extended trading.
Online sales fell 6%, accounting for 34% of total sales.
Comparative sales, which track sales online and in stores open for at least 12 months, are down 10% from a year ago. That includes a 15% drop at Old Navy, which the company said was affected by inventory delays, “product acceptance issues” in key categories, and slowing demand in lower-income shoppers.
According to the company’s eponymous Gap banner, global comparable sales fell 7%, in part due to planned and ongoing store closures.
Comparative sales at Athleta fell 8%, with the company noting a shift in consumer preferences from sports to work categories. At Banana Republic, comparable sales have grown by 8%, which the retailer strives for is due to investment in quality and changing consumer trends.
Gap said in prepared remarks that it started to notice an improvement in sales trends in July and into August coinciding with a drop in gas prices. However, the company did not provide a forecast for its full fiscal year due to uncertainty about consumer behavior and promotions at other retailers.
The company ended its latest quarter with $3.1 billion in inventory, up 37% year-over-year. Some of these were intentionally packaged for sale in a different season, and some are still being shipped, Gap said.
As part of a cost-cutting effort, the company said it has reduced the number of new Old Navy stores it plans to open in the second half of the year.
Gap Interim Chief Executive Officer Bob Martin said: “While rising inventories and pressured margins are the current reality given volatile market conditions, they do not define viability. Our ability to leverage the strengths of Gap Inc. win the championship”.
Gap’s Former CEO Sonia Syngal resigns from her role abruptly in July. The company also recently appointed a new leader for its former Navy division.