The US clothing group Gap Inc. had to accept a significant drop in sales and high losses in the first quarter of the 2022/23 financial year. The management blamed the industry-wide “headwinds” and strategic mistakes at the largest group brand Old Navy for the “disappointing” results and corrected its annual forecasts significantly downwards on Thursday evening, whereupon the share price immediately dropped by more than 15 percent.
For the 13 weeks ended April 30, group sales were $3.48 billion. It thus missed the level of the same quarter of the previous year by 13 percent. The biggest problem child was the budget label Old Navy, whose revenues shrank by 19 percent to 1.84 billion US dollars. The company justified the decline by saying that the products in “some key categories” were not well received by customers. In addition, there were “imbalances in size and range”. In a conference call with analysts, those responsible admitted that they had not taken the increasing demand for occasion and party fashion into account in good time after the pandemic-related restrictions. Old Navy CEO Nancy Green had to vacate her post in April in view of these misjudgments.
The Gap brand was also down, with sales down 11 percent to $791 million. The Banana Republic label, on the other hand, was able to grow strongly, posting an increase of 24 percent to USD 482 million after its relaunch. The sportswear brand Athleta increased by four percent to 360 million US dollars.
Higher freight costs and higher discounts on Old Navy hard-selling products weighed on earnings. The group had to post an operating loss of 197 million US dollars after an operating profit of 240 million US dollars had been achieved in the same period last year. The bottom line was a net loss of 162 million US dollars (151 million euros). The clothing retailer closed the first quarter of the previous year with a surplus of 166 million US dollars.
The recent weak business development had a significant impact on the forecast for the year. The management no longer expects slight growth in sales, but rather a decline “in the low to mid single-digit percentage range” compared to the previous year. Diluted earnings per share target was lowered to $0.40-$0.70 from $1.95-$2.15.