gap It reported mixed results Thursday and disappointing guidance for the current quarter as the mall retailer has long warned of an “uncertain consumer” and posted another quarter of declining sales across all four of its brands.
The company expects net sales to fall in the low double-digit range for the fiscal third quarter compared to last year’s net sales of $4.04 billion. Analysts had expected third-quarter sales to decline by 6.8%, according to estimates compiled by Refinitiv.
For the three-month period ending July 29, the gap beat Wall Street’s estimates for the bottom line but was below the peak.
Here’s how the apparel retailer fared in the fiscal second quarter compared to what Wall Street was expecting, based on a survey of analysts by Refinitiv:
- Earnings per share: 34 cents, adjusted, For an expected 9 cents
- Revenue: $3.55 billion Against the expected $3.57 billion
The company’s reported net income for the quarter was $117 million, or 32 cents per share, compared to a loss of $49 million, or 13 cents per share, in the previous year. Excluding one-time restructuring costs, Gap reported net income of 34 cents per share.
Sales fell 8% to $3.55 billion, compared to $3.86 billion a year earlier.
The company’s same-store sales fell 6% during the quarter, while analysts had expected comparable sales to fall 4.4%, according to StreetAccount.
Gross margins, which had expanded over the last two quarters, rose 3.1 percentage points to 37.6%, Gap said, thanks to lower air freight costs and slower discounts. It expects gross margins to continue to grow throughout the fiscal year.
In the middle of Gap’s fiscal year, the retailer expects full-year sales to fall in the mid-single-digit range from a year ago, which is in line with what analysts expected, according to Refinitv.
The report comes two days after Richard Dixon took over as Gap’s new CEO. the previous Mattel The CEO, who began his new role on Tuesday, is a branding expert who has overseen Mattel’s Barbie franchise. Gap is betting that Dixon can breathe new life into Gap’s brands: its namesake logo, Old Navy, Banana Republic and Athleta.
All four brands, which have vastly different lineups and customer bases, have seen sales decline quarter by quarter, and the trend has continued.
Here’s a closer look at their performance during the second fiscal quarter:
Old Navy: The affordable clothing retailer and the Gap’s largest revenue driver saw sales and comparable sales decline 6% to $1.96 billion. The target customer, the lower-income consumer, shopped less during the quarter and sales were slow in its active segment. The brand has seen bright spots in women’s shirts, knit bottoms, and rises in men’s and kids’ apparel.
gap: The banner bearing its name saw sales drop 14% to $755 million compared to the same period last year. The brand was pressured by the closure of Yeezy Gap and the sale of Gap China. Sales were strong in the women’s category but were offset by store closures in North America. Comparable sales decreased by 1%.
Banana Republic: Sales were down 11% to $480 million year-over-year while comparable sales were down 8%. The brand is growing significantly compared to past quarters when it saw a spike in demand from shoppers who suddenly needed clothes for work and out again after the Covid pandemic subsided.
Athleta: The sportswear brand saw $341 million in sales. And while revenues were down just 1% compared to the same period last year, comparable sales were down 7%. For the third quarter in a row, Gap has fallen short of what Athleta customers were looking for, as the brand continues to search for the right product suite.
“We’re seeing encouraging signs of progress, as our teams streamline the way we work so we can focus on initiatives that drive growth – a virtuous cycle we look forward to becoming our benchmark,” Dixon said in a press release. “That means we have to do things differently, with a clear focus on redefining what our brands mean to consumers, focus on creativity, design for fit as an endeavour, not a goal, and build on our remarkable heritage to shape an exciting new future.”
Gap boss Bob Martin, who served as interim CEO for more than a year before Dixon was hired, has been working to restructure both its business and management organization so that the new CEO can start right on his arrival.
The company said earlier that over the past year, Gap has laid off more than 2,000 employees, or about 25 percent of its corporate roles, increasing the number of direct reports per manager from two to four and reducing layers of management from 12 to eight. . The cuts are designed to remove layers of red tape and bureaucracy to make Gap smarter in its decision-making process and more focused on its creative efforts.
The layoffs are saving Gap about $300 million, the first half of which will come in fiscal 2023. During the quarter ended April 29, Gap margins increased 5.6 percentage points year over year to 37.1%. The news sent its shares higher in aftermarket trading despite another quarter of declining sales.