Gap Inc., benefiting from cost cutting and downsizings, managed to sharply reduce its loss in the first quarter this year despite sales declines across its portfolio.
On Thursday, Gap Inc. reported a net loss of $18 million compared to a $162 million net loss a year ago. The operating loss last quarter shrunk to $10 million, from a loss of $197 million in the year-ago period,
Net sales of $3.28 billion for the first quarter ended April 29 were down 6 percent compared to last year, inclusive of an estimated one point foreign exchange headwind and 2 percentage points of negative impact from the sale of Gap China. The company said the sales decline was in line with expectations for a midsingle-digit decline in the quarter.
Wall Street was impressed with the report and sent Gap Inc.’s share price up 15 percent, or $1.11, to $8.53 in after-market trading.
The San Francisco-based retailer cut 1,800 jobs last April and 500 jobs last September, most of which were corporate positions. Over the last three years or so, hundreds of Gap and Banana Republic stores have been closed.
The company’s bottom line has also been helped by easing supply chain costs.
In a conference call with investors and retail analysts, Bob Martin, executive chairman and the interim chief executive officer, said the company last quarter moved quickly to clear excess merchandise, there was over 600 basis points in margin expansion, that the balance sheet is strong with 40 percent more cash, and that there is 30 percent less inventory.
He also said that by restructuring the organization, bureaucratic complexity and outdated processes have been removed, as well as costs. “That will improve decision-making quality and speed,” he said.
Store sales decreased 4 percent compared to last year. The company ended the quarter with 3,453 store locations in more than 40 countries, of which 2,601 were company operated.
Online sales decreased 9 percent compared to last year and represented 37 percent of total net sales.
“We continue to take the necessary actions to drive critical change at Gap Inc., ultimately getting us back on a path toward delivering consistent results long-term,” Martin said in a statement Thursday. “While the macro and consumer environment remain uncertain, Q1 underscores our ability to deliver improvements to the business including share gains at Old Navy and Gap Brand, adjusted operating margin expansion, reduction in inventory and strength in our balance sheet. The need for lasting change is permeating the organization and I want to express my gratitude to our employees for embracing a new operating model and organizational structure, a renewed focus on our customer, and for their continued belief in our incredible brands.”
“The Gap Inc. board of directors and I have deep appreciation for and confidence in the work that has taken hold under Bobby Martin and the leadership team, with results already showing progress, and more importantly, a collective focus on continued improvement still ahead,” Mayo Shattuck, Gap Inc.’s lead independent director, said in a statement. “As we are engaged toward the appointment of a new Gap Inc. CEO to carry this work into the future, we look forward to the time when we will introduce this great company’s next leader — one who will bring passion, vision and an unwavering focus on the customer.” Martin has been filling in as CEO since July 2022 when Sonia Syngal left the company.
At Old Navy last quarter, net sales reach $1.8 billion, down 1 percent compared to last year. Sales in the quarter were driven by continued strength in the women’s category offset by continued softness in the active and kids’ categories as well as continued slower demand from the lower-income consumer. Comparable sales were down 1 percent.
Gap brand’s net sales reached $692 million last quarter and were down 13 percent compared to last year. Excluding the negative impact from the sale of Gap China, the shutdown of Yeezy Gap and foreign exchange headwinds, net sales were down 1 percent versus last year driven by continued strength in the women’s category offset by continued softness in the active and kids’ categories as well as strategic store closures in North America. Comparable sales were up 1 percent.
At Banana Republic, net sales reached $432 million and were down 10 percent on top of 24 percent growth last year. Sales in the quarter were impacted as the brand lapped outsized growth last year driven by the shift in consumer preferences, the company said. Comparable sales were down 8 percent. BR recently launched into home products. “We look forward to an expanded collection in the future,” Martin said in the call.
Net sales at Athleta reached $321 million and were down 11 percent compared to last year. Sales in the quarter were impacted by continued product acceptance challenges. “We strayed too far from its performance DNA,” Martin said in the call. Comparable sales were down 13 percent. The brand continues to search for a new leader
“The company is estimating second-quarter net sales could decrease in the mid- to high-single-digit range compared to last year’s net sales of $3.86 billion. As a reminder, the sale of Gap China to Baozun Inc. closed on Jan. 31, 2023. Second-quarter 2022 net sales included approximately $60 million in sales for Gap China,” Gap Inc. indicated.
“The company continues to anticipate that fiscal 2023 net sales could decrease in the low- to midsingle-digit range compared to last year’s net sales of $15.6 billion. Fiscal 2022 net sales included approximately $300 million in sales for Gap China.” Fiscal 2023 will include a 53rd week estimated to positively impact net sales by $150 million.
The company expects second-quarter and fiscal 2023 gross margin expansion compared to the prior year. At the estimated level of sales described above, the company is planning adjusted selling, general and administrative expenses of about $1.3 billion in the second quarter and continues to anticipate approximately $5.2 billion for fiscal 2023.
Fiscal 2023 capital expenditures are seen in the range of $500 million to $525 million, compared to its prior range of $500 million to $550 million, reflecting lower capital project investments and fewer Old Navy and Athleta store openings than previously contemplated.