Gap withdraws 2022 financial outlook as Old Navy sales fall in second quarter

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An employee hands a customer a shopping bag at an Old Navy store in San Francisco.
David Paul Morris | Bloomberg | Getty Images

Gap Inc. on Thursday withdrew its financial outlook for the year after it swung to a net loss in the fiscal second quarter and its Old Navy chain continued to struggle with the wrong mix of sizes and styles.

The San Francisco-based company, which is in the midst of finding a new CEO, cited its recent execution challenges and uncertain macroeconomic trends for withdrawing its guidance for 2022. Decades-high inflation is hurting lower-income consumers who are among the core customers for some of the company’s brands.

“In the near-term, we are taking actions to sequentially reduce inventory, rebalance our assortments to better meet changing consumer needs, aggressively manage and reevaluate investments, and fortifying our balance sheet,” Chief Financial Officer Katrina O’Connell said in a news release.

For the three-month period ended July 30, the retailer reported a net loss of $49 million, or 13 cents per share. A year earlier, it reported a net income of $258 million, or 67 cents a share.

Excluding one-time items, the company earned 8 cents a share.

Gap’s revenue for the period fell 8% to $3.86 billion from $4.2 billion a year earlier. That topped estimates for $3.82 billion, according to a Refinitiv survey. Shares of Gap were up 7% in extended trading.

Online sales dropped 6%, representing 34% of total sales.

Comparable sales, which track revenue online and at stores open for at least 12 months, were down 10% from a year ago. That included a 15% decline at Old Navy, which the company said was hit by inventory delays, “product acceptance issues” in key categories and slowing demand among lower-income shoppers.

At the company’s namesake Gap banner, global comparable sales fell 7%, in part due to ongoing and planned store closures.

Comparable sales at Athleta were down 8%, with the company noting a shift in consumer preference from athleisure to work-based categories. At Banana Republic, comparable sales rose 8%, which the retailer chalked up to its investments in quality and shifting consumer trends.

Gap said in prepared remarks that it started to see an improvement in sales trends in July and into August coinciding with a drop in gas prices. However, the company is not offering a forecast for its full fiscal year due to ongoing uncertainty around consumer behavior and promotions at other retailers.

The company ended the latest quarter with inventory of $3.1 billion, up 37% from the prior year. Some of this was intentionally packed away to be sold in another season, and some of it is still in transit, Gap said.

As part of its cost-cutting efforts, the company said it reduced the number of new Old Navy stores it planned to open in the back half of the year.

“While our elevated inventory and pressured margins are current realities against unsettled market conditions, they do not define our ability to capitalize on Gap Inc.’s strengths to win,” said Gap’s interim CEO Bob Martin, who is also executive chair.

Gap’s former CEO Sonia Syngal stepped down from her role abruptly in July. The company also recently named a new leader for its Old Navy division.

Sophie Tremblay

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