Gap (GPS) Q1 2022 Revenue Reports

Gap Inc. On Thursday it cut its profit guidance for the full year as it announced a decline in first-quarter sales, which had been dragged down by its old naval business.

After rising 4% at the end of the day, the stock fell more than 10% after hours.

The unbalanced mix of clothing sizes, the current cargo delays and the increase in price-reduction incentives had a detrimental effect on the performance of the Old Navy in the quarter.

Low-income consumers who are the target customers of the old navy are beginning to feel pinched by inflation, CEO Sonia Singhal told CNBC. The old navy’s “sweet spot” – from buying Active dresses and fleece hoodies, shoppers quickly switched to looking for party dresses and office attire, he said in a phone interview.

“We’re dealing with really turbulent consumer signals – whether it was in Govt last year or post-Govt behaviors this year,” Singhal said. “Over time, we find that customer preference for product types is in balance.”

Gap’s results indicate a huge difference in retail trade between companies that have a lot of money in American wallets and companies that sell to expensive shoppers looking for deals.

As inflation heats up, the latter have been hit hard and some purchases have already begun to decline. Meanwhile, wealthy consumers continue to pile up expensive clothing, jewelry and luggage in stores for the summer holidays. Nordstrom, That’s Bloomingdale And Ralph Lauren.

In late April, there was a break Warned of restrictions within the old naval trade When the division’s CEO Nancy Green announced her resignation. In search of succession for the Green Company, Singhal has been helping to lead the interim discount clothing brand.

Cape now expects to earn 30 cents to 60 cents per share on a revised basis in fiscal 2022. It is down from the previous range of 1.85 and $ 2.05. Also below analysts ’expectations for $ 1.34 per share, based on Refinitiv data.

Chief Financial Officer Katrina O’Connell said the Cape had revised its outlook to account for the Old Navy’s “implementation challenges”, the uncertain macroeconomic environment and inflationary spending pressures. In addition, the recession in China is affecting Cape’s named brand.

For the three-month period ended April 30, net income of $ 162 million or 44 cents per share or $ 166 million, or 43 cents per share, turned into a net loss of one year earlier.

Revenue fell about 13% to $ 3.48 billion from $ 3.99 billion a year earlier. It came just ahead of $ 3.46 billion in expectations.

Gap said its sales volume was affected by an estimated 5 percentage points related to the retailer raising from stimulus checks a year ago, and is approximately 3 percentage points from the sale of shares, shop closures and the transformation of its European business into a partnership model.

Overall, sales of the same store fell 14% year-on-year, more than the 12.2% drop expected by analysts. Within that number, Gap said its online sales were down 17% and store sales were down 10% from last year.

Here is a breakdown of single store sales performance by brand:

  • Interval: 11% reduction per year
  • Old Navy: 22% less per year
  • Banana Republic: Increased by 27% per year
  • Athlete: 7% off

Cape’s executives also agreed Thursday The latest impetus for selling extra quantities of goods The retailer at Old Navy did not carry enough of its core sizes to customers, and large quantities of extended sizes were not purchased.

“Our setback is that, in covert volume publishing, we may have actually moved away from messaging. What works for the old navy is value messaging,” CFO O’Connell told CNBC in a phone call. “We’re really trying to get back to that.”

Total inventory as on April 30 increased by 34% compared to the previous year.

Those levels will start to decline throughout the year, but may rise in the second quarter, O’Connell said.

“Our reserve levels were significantly higher than we expected,” O’Connell said, adding that he expects almost half of the unnecessary increase to be due to longer transit times, which will not get better in no time.

This story is evolving. Check back for updates.

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