Gap Inc. Logs $282 Million in Quarterly Profits, Causing Shares to Surge
Gap Inc.’s losing streak has come to an end, at least for now.
The San Francisco-based retailer — which includes the Gap, Banana Republic, Old Navy and Athleta in the greater portfolio — revealed quarterly earnings of $282 million after Thursday’s closing bell. Shares of Gap Inc. surged more than 10 percent as a result.
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“I have deep conviction that we have a portfolio of iconic brands that our customers love, increased confidence in our platform to drive leverage and economies of scale and belief in the team’s ability to deliver,” Bob Martin, executive chairman and interim chief executive officer of Gap Inc., said in a statement. “We have sharpened our focus on execution to optimize profitability and cash flow, are bringing more rigor to our operations and balancing our assortments in response to what our customers are telling us. While our efforts show early signs of improvement, we are clear that there is work to be done to deliver what our customers, employees and shareholders expect from Gap Inc.”
Total revenues for the three-month period ending Oct. 29 rose 2 percent to just over $4 billion, compared with $3.9 billion a year ago. Comparable sales increased 1 percent during the quarter, while online sales — which represent 39 percent of total net sales — grew 5 percent year-over-year. Store sales rose 1 percent year-over-year.
By brand, both the Gap, the firm’s largest brand, and Old Navy experienced softness in kids’ and baby categories. Net sales at Old Navy grew 2 percent year-over-year to $2.1 billion, driven by improved size and assortment balance. The firm also said there was decreased demand from low-income consumers. Old Navy comparable sales fell 1 percent during the quarter year-over-year.
Net sales at the Gap brand were flat to last year at just over $1 billion. The brand’s global comparable sales were up 4 percent year-over-year, while Gap North American comparable sales were flat.
Revenues at Banana Republic grew 8 percent during the quarter year-over-year to $517 million, while comparable sales rose 10 percent year-over-year.
Total sales at Athleta were up 6 percent to $340 million, with some softness as consumers shift from activewear to occasion wear and more work-based wear. Athleta’s comparable sales were flat during the quarter, year-over-year. The brand launched intimates in September as part of its previously stated plans to achieve $2 billion in annual revenues by 2023.
Headwinds during the quarter included $53 million worth of impairment charges related to the closure of the Yeezy Gap business. In addition, merchandise margins were negatively impacted from increased promotions and inflationary pressures. These were partially offset by lapping last year’s higher air freight expense. The retailer ended the quarter with $3.04 billion in inventory, up 12 percent year-over-year.
Still, the company logged $282 million in profits, compared with losses of $152 million during 2021’s third quarter.
But, like many of its peers, the retailer is expecting a weak holiday shopping season. Gap Inc. said it is now expecting fourth-quarter total company net sales to be down as much as midsingle digits year-over-year.
“While our third-quarter results underscore the initial progress we are making toward rebalancing our assortments and reducing inventories, we continue to take a prudent approach in light of the uncertain consumer and increasingly promotional environment as we look to the remainder of fiscal 2022,” Katrina O’Connell, executive vice president and chief financial officer of Gap Inc., said in a statement. “In the near-term, we remain focused on the actions necessary to reduce inventory, rebalance our assortments to better meet changing consumer needs, aggressively manage and reevaluate our investments and fortify our balance sheet. While we have work to do, we believe we are taking the right steps in order to position Gap Inc. for sustainable, profitable growth and to deliver value for our shareholders over the long term.”
Gap Inc. has been in flux over the last year as the specialty retailer continues to experience losses. In July, Gap’s former CEO and President Sonia Syngal departed, leaving the company without a permanent captain. Executives on Thursday evening’s conference call said the company is still looking for a permanent CEO.
Troubles continued in September when Gap parted ways with Kanye West — and a lucrative partnership with the Gap Yeezy line — after both parties were unable to see eye to eye. That same month, Gap slashed roughly 500 jobs, mostly in its corporate offices.
But the Gap has been in course-correction mode ever since. Earlier this month, Gap partnered with Amazon on a distribution deal. The Gap also recently sold its China business to Chinese e-commerce firm Baozun for $50 million.
The company ended the quarter with 3,380 store locations in more than 40 countries, 2,743 of which are company-operated stores, as well as $679 million in cash and cash equivalents.
Shares of Gap Inc., which closed up 5.65 percent to $12.72 apiece Thursday, have fallen more than 47 percent in the last year.
