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

Mario Tama | Getty Images

Space It reported another quarter of losses and a drop in sales across its four brands, but the retailer insisted it was making progress – and managed to improve margins significantly, sending shares up in the aftermarket business.

Here’s how the apparel retailer did in its fiscal first quarter compared to Wall Street’s expectations, based on a survey of analysts by Refinitiv:

  • Earnings per share: 1 cent, adjusted, compared to a loss of 16 cents, expected
  • Income: 3.28 billion dollars from 3.29 billion dollars expected

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The company reported a loss of $18 million, or 5 cents a share, in the three months ended April 29, down from $162 million, or 44 cents a share, last year. On an adjusted basis, the company reported earnings of $3 million, or 1 percent of the stock, during the period.

Sales fell to $3.28 billion, down 6 percent from $3.48 billion a year ago.

The company’s shares jumped more than 15 percent in after-hours trading.

Gap — which includes its namesake brand, Old Navy, Banana Republic and Athletic — has been without a CEO for nearly a year as it works to restructure its business, better understand its consumers and return to profitability.

The company stated that work is in good condition, but admitted that it is important for a long time.

“Consistent with what you’ve heard from us over the past few quarters, we continue to take the necessary steps to make a significant change at Gap Inc., further improve the direction of our business, and return to a path of delivering sustainable results,” Interim CEO Bobby Martin told investors on an earnings call. .

“I understand we’ve raised these issues before, and all I can say is that this work has been delayed for far too long and it’s important that we get it right.”

Last month, it told investors it would lay off about 1,800 workers, more than triple the 500 job cuts it announced in September as part of a broader effort to cut costs and streamline operations.

Between this year and last, the company reduced the role of the headquarters by 25%, reducing the number of direct reports of each manager from 2 to 4 and management layers from 12 to 8.

The company says the cuts will eliminate red tape and bureaucracy, allowing Gap to be more streamlined in its decision-making and focus on its innovation efforts.

In March, he announced a major leadership shakeup. Athleta CEO Mary Beth Lawton has left the company and her role as chief development officer has been eliminated. Gap has announced that its chief executive officer, Sheila Peters, will step down at the end of the year.

Martin said during an earnings call with investors that the search for a new CEO is ongoing, but did not share a timeline.

“When I took over as interim CEO in July, I didn’t expect to still be talking to you on our first quarter earnings call,” Martin said. “But it also shows how strongly the board is committed to appointing the right person as the next CEO, someone with passion, a strong vision and an obsession with customers who will drive this company forward.”

Martin previously said he would be a foreign candidate for the next CEO.

In the most recent quarter, comparable sales were down 3 percent and same-store sales were down 4 percent from last year.

Online sales, which represent 37 percent of total net sales, were down 9 percent year-on-year, but the company said sales trends are rising against the historical norm after the Covid-19 pandemic led to an industry-wide jump in ecommerce. . Digital sales increased 39 percent compared to the first quarter of 2019, the company said.

Over the past year, many retailers are still grappling with supply chain issues related to the pandemic and have had trouble selling products that are out of date or out of style, leaving Gap with junk inventory.

Many, like Gap, have relied on promotions to clear that inventory, particularly at Old Navy, but in the most recent quarter, it was able to hold the line at lower prices — and cut air freight costs, resulting in better profits for retailers. in the industry.

Year-on-year gross margin increased by 5.6% year-on-year to 37.1%. Margins improved sequentially from the previous quarter of 33.6%.

The company attributed the squeeze on margins to lower air freight costs and reduced depreciation.

How were the Gap brands?

  • Former NavyNet sales, which account for most of Gap’s revenue, fell 1 percent to $1.8 billion, while sales fell 1 percent. Sales were strong in the women’s and baby categories, but profits were offset by softness in active and kids and a continued slowdown in consumer demand. Old Navy, which caters to lower-income consumers, is more vulnerable to macroeconomic conditions.
  • Space It reported sales of $692 million, a 13% year-over-year decline and 1% like-for-like sales. Similar to Old Navy, the eponymous banner saw strength in the women’s and children’s categories and softness in activewear and kids. Sales were impacted by Gap store closings, the company said.
  • Banana Republic It saw sales of $432 million, down 10% year over year. The company attributed the price cuts to an “overwhelming” 24 percent jump in sales over the past year due to a shift in consumer preferences as many returned to and left work following the Covid lockdowns. Comparable sales were down 8 percent.
  • Athlete It still lacks a signal regarding what consumers want. Net sales fell to $321 million, down 11 percent year-over-year, and comparable sales were down 13 percent. The drop in sales is due to ongoing product acceptance challenges, including color, print, pattern, graphic “missing” and moving away from the brand’s “performance DNA.”

It continued to improve its inventory levels, which decreased by 27 percent in the quarter to $2.3 billion.

Gap still has promotions and discounts, but now that inventory is cleared, they’re not impacting margins, said Katrina O’Connell, Gap’s chief financial officer.

“Inventory reductions have really allowed us to clean up the markup part of the business, which doesn’t add a lot of customer value, right? That’s just the last year that wasn’t well received by the consumer and we had to sell the excess inventory, the wrong inventory,” O’Connell said on the earnings call.

“The benefit of clearing this markdown is that it allows us to still promote, which is the best way to provide value to the consumer, which is still important at this time.”

Among its brands, Gap has been researching to better understand consumers to deliver products they want, regain market share, and reverse sluggish sales.

Gap’s full-year outlook was largely unchanged from its March forecast. The company expects second-quarter net sales to decline in the mid- to high-single-digit range.

For the full year, it continues to expect net sales to fall in the low to mid-single digit range.

The view is partly influenced by the company’s Gap China sales. Net sales from Gap China in the second quarter of fiscal 2022 included $60 million and sales of $300 million in fiscal 2022.

Fiscal 2023 also includes the 53rd week, which is expected to increase sales by $150 million.

Gap expects gross margin growth to continue and capital expenditures to fall to $500 million to $525 million, compared to $500 million to $550 million. The reduction is due to a decision to open about 5 Old Navy and Athleta stores this fiscal year.

The company plans to open a network of 25 to 30 Old Navy and Athleta stores this fiscal. He expects to close 50 to 55 Gap and Banana Republic outlets, and more than half will be Gap.

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