The Modest Man
Gap reported a net loss and declining sales in its fiscal first quarter for its four brands, including Old Navy, Banana Republic, Athleta and its namesake brand. The company’s net loss narrowed to $18m, or 5 cents per share, from $162m, or 44 cents per share, in the year-earlier period. Although sales dropped 6% from $3.48bn last year to $3.28bn, the company’s margins improved, leading to a 15% increase in shares in after-hours trading. The company has been restructuring, streamlining operations and getting back on track to profitability, as it’s been without a CEO for nearly a year. In March, it announced a major leadership shake-up, and has cut 25% of its headquarters’ roles to reduce bureaucracy, allowing Gap to be more nimble in decision-making and to focus on its creative efforts.
Gross margins increased by 5.6 percentage points YoY to 37.1%, a bump in margins attributed to lower air freight expenses and a slowdown in discounting, although inflationary costs partially offset the increase. Old Navy, which represents the majority of Gap’s revenue, saw net sales decline by 1% to $1.8bn, with a 1% decrease in comparable sales. Sales in women’s and baby categories were strong, but weak in activewear and kids’ items. Gap reported $692m in sales, a 13% decrease YoY, yet a 1% increase in comparable sales. Banana Republic sales amounted to $432m, a 10% decline YoY, with comparable sales decreasing by 8%. Athleta’s net sales plummeted to $321m, representing an 11% YoY drop, and comparable sales were down 13%.
Online sales, which represented 37% of total net sales, dropped 9% YoY because sales trends are getting back in line with pre-pandemic metrics, yet digital sales are up 39% compared to Gap’s fiscal first quarter of 2019. While Gap is still offering discounts to customers, they’re not denting margins like they previously had, now that inventories look cleaner. Gap is still conducting research across its brands to better understand what products customers want in an attempt to regain market share and reverse sales slumps.
For its fiscal year, Gap expects a second-quarter mid-to-high single-digit range decline in net sales, and it continues to expect net sales to be down in the low to mid-single-digit range. Fiscal 2023 will include a 53rd week, expected to boost sales by $150m, and Gap anticipates gross margin to continue to rise, with capital expenditures to come down to $500m to $525m. The company plans to open a net 25 to 30 Old Navy and Athleta stores in the fiscal year, a third of which will be Old Navy, and to close 50 to 55 Gap and Banana Republic outposts, more than half of which will be Gap.
