Gap GPS Q1 2023 Earnings Report


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

mario tama | Getty Images

Gap posted another quarter of net losses and lower sales through its four brands but the retailer insisted it was making progress – and managed to improve its margins significantly, sending shares higher in extended trading.

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

For the three months that ended April 29, the company’s net loss narrowed to $18 million, or 5 cents per share, from $162 million, or 44 cents per share, l ‘last year. On an adjusted basis, the company reported earnings of $3 million, or 1 cent per share.

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

Shares jumped more than 15% in after-hours trading on improved gross margins.

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 customers and return to profitability.

The retailer said work was well advanced – and acknowledged it was long overdue.

“Consistent with what you have heard from us over the past few quarters, we continue to take the necessary steps to drive critical change at Gap Inc., to further improve the trajectory of our business and get us back on the delivery path. consistent results,” interim CEO Bobby Martin told investors on an earnings call.

“I understand we’ve surfaced these issues before, and what I would say is just that this work has been derailed for too long and it’s imperative that we get serious about it,” he said. declared.

Last month, Gap 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, reducing the number of direct reports to each manager from two to four and reducing management levels from 12 to eight, a said the company.

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.

On a conference call with investors, Martin said the search for a new CEO continues, but he didn’t say when the position would be filled.

“When I took on the role of interim CEO in July, I didn’t expect to speak to you again on our first quarter earnings call,” Martin said. “But that only underscores how committed the board is to appointing the right person as our next CEO, someone with the passion, strong vision and customer obsession that will drive this company forward. “

Martin has previously said the next chief executive will be an external candidate.

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

Online sales, which accounted for 37% of total net sales, also fell 9% year-on-year, but the company said this was due to sales trends becoming increasingly in line with pre-pandemic measures. But digital sales were up 39% from the first fiscal quarter of 2019, the company added.

In the prior year period, many retailers were still struggling with pandemic-related supply chain issues and this left Gap with a glut of inventory that the company was struggling to sell as it was not in season or in style.

Gap, like other retailers, relied on promotions to eliminate that inventory, particularly at Old Navy, but in its final quarter it was able to hold the line on discounts — and benefit from freight spend. airline prices that have led to better margins for retailers across the industry.

Gross margins increased 5.6 percentage points year over year to 37.1%, and also improved from the prior 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.

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 and babies’ categories, but gains were offset by weakness in active and children’s businesses 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 and babies’ categories, and softness in activewear and kids’. 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, including “missing” color, print, pattern, silhouette and drifting away from the brand’s “performance DNA”.

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

The company is still offering promotions and discounts, but they’re not affecting margins the way they were now that inventory is cleaned up, Gap chief financial officer Katrina O’Connell said.

“Reducing inventory has really allowed us to clean up the markdown portion of the business, which doesn’t add much customer value, does it? It’s just inventory that the consumer doesn’t have didn’t respond well last year and we had to sell through given excess stock, the wrong stock,” O’Connell said on an earnings call.

“Margin profits from cleaning up that markdown, what that allows us to do is still promote, which is a better way to deliver value to the consumer, which is still important right now.”

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.

Gap 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 decline is due to the decision to open approximately five fewer Old Navy and Athleta stores during the fiscal year.

The company plans to open a network of 25 to 30 Old Navy and Athleta stores during the fiscal year, a third of which will be Old Navy. It plans to close 50 to 55 Gap and Banana Republic outposts, more than half of which will be Gap.

Read it full publication of results.

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