Gap Inc. on Thursday projected that its first-quarter revenue would decline year over year after sales during the holiday period came in below pre-pandemic levels.
Supply chain snarls remain a headache for the retailer, which also owns the Banana Republic and Old Navy brands. Gap Chief Executive Sonia Syngal said in a press release that the retailer faced near-term disruptions during its fiscal fourth quarter that “muted” overall performance.
Gap sees revenue contracting in the first quarter by a mid-to-high single-digit rate compared with the prior year. Analysts had been looking for a smaller 3.8% drop.
The comments from Gap echo a shared sentiment among other apparel retailers, including American Eagle Outfitters, Abercrombie & Fitch, Urban Outfitters and Victoria’s Secret, which are facing headwinds from rising inflation to a lingering labor crunch to global unrest spurred by Russia’s invasion of Ukraine.
Each of these companies spoke this week to recent troubles securing merchandise over the holiday season due to supply chain constraints. They also cautioned that pressures related to shipping and rising prices will persist at least through the first half of the year.
Gap said its gross margins contracted to 33.7% in the fourth quarter, falling short of analysts’ estimates for 35.2%, according to StreetAccount. Gap said the metric was pressured by higher air freight costs, which were partially offset thanks to the company selling more hoodies and denim at full price points.
Here’s how Gap did in its fourth quarter compared with what Wall Street was anticipating, according to a survey of analysts by Refinitiv:
Loss per share: 2 cents adjusted vs. 14 cents expectedRevenue: $4.53 billion vs. $4.49 billion expected
Gap swung to a loss in the three-month period ended Jan. 29 of $16 million, or 4 cents per share, compared with net income of $234 million, or 61 cents a share, a year earlier.
Excluding charges related to strategic changes in its European business, Gap lost 2 cents a share, which was narrower than the 14-cent loss that analysts had been looking for, according to Refinitiv data.
Revenue grew about 2% to $4.53 billion from $4.42 billion a year earlier. That beat estimates for $4.49 billion. Compared with 2019 levels, however, Gap said its sales were down 3%. That was partially due to ongoing and planned store closures.
Same-store sales — a key metric that tracks revenue at retail stores open for at least 12 months — grew 3% year over year, short of the 3.7% increase that analysts had been looking for. On a two-year basis, same-store sales were also up 3%.
Here’s a sales breakdown, by brand:
Gap said Old Navy was hurt in part due to supply chain complications, with same-store sales flat compared with 2019.At Gap’s namesake banner, same-store sales climbed 3% on a two-year basis, fueled by double-digit growth in North America. The company said the brand is poised to grow in the coming months thanks to a recent tie-up with Walmart for home goods, as well as its collaboration with rapper Kanye West.Banana Republic same-store sales dropped 2% from 2019 levels, in part due to ongoing store closures, the company said.Same-store sales at Athleta, Gap’s growing athletic apparel line for women, surged 42% on a two-year basis. The company said Athleta is still on track to hit $2 billion in annual sales by 2023.
The retailer said it expects inventories to grow in the mid-20% range by the end of the first quarter, compared with a year ago, due to it booking merchandise orders earlier than normal in order to try to offset longer transportation timeframes.
For the full year, Gap expects to earn between $1.85 and $2.05 per share, on an adjusted basis, with sales growing a low single digit percentage from 2021. Analysts were projecting annual adjusted per-share earnings of $1.86, with sales up 1.6% from prior-year levels.
Find the full financial press release from Gap here.
This story is developing. Please check back for updates.