Gap Inc. reports declines across portfolio – Sourcing Journal

Gap Inc., which continues to suffer from a decline in market share and product acceptance, reported a much larger fourth-quarter loss than a year ago and announced a series of high-level management departures.

Gap lost $273 million for the quarter ended January 28, compared to a loss of $16 million for the same period last year. Net sales of $4.24 billion declined 6 percent year-over-year, including an estimated one-point headwind from currency exchange rates. Net sales were in line with the company’s expectations for a mid-single-digit decline for the quarter.

Comparable sales were down 5 percent year-over-year, with in-store sales down 3 percent and online sales down 10 percent. Online sales accounted for 41 percent of total sales.

Senior executives who have left the company include Chief Growth Officer Asheesh Saksena and Mary Beth Laughton, Athleta’s President and Chief Executive Officer. The company also said that Sheila Peters, chief people officer, will leave the group at the end of the year.

The day’s news sent Gap shares down 4.9 percent, or 68 cents, to $10.90 in after-hours trading.

“To enter fiscal 2023 in a more competitive position, we have quickly and effectively taken actions to reduce excess inventory, improve assortment balance, particularly at Old Navy, and meaningfully optimize our cost structure, resulting in annual savings identified to date of $550 million. Gap Inc. executive chairman and interim CEO Bob Martin said in his statement Thursday afternoon. “The board is about to select the next CEO for Gap Inc. As a result of the work we have underway to build a stronger foundation and restore the company’s creative power, we are optimistic that this will provide our new leader with an accelerated rise to drive sustained profitable growth.”

By business segment, Old Navy net sales of $2.2 billion in the fourth quarter decreased 6 percent year-over-year. Comparable sales declined 7 percent. Officials cited weakness in demand from lower-income consumers and in the children and babies category, partially offset by strength in the women category. As stated last quarter, the company believes that Old Navy brought sales forward from fourth quarter to October as a result of its efforts to roll out its first Christmas sale earlier than usual, which also impacted growth for the quarter.

In the Gap division, net sales declined 9 percent to $1.1 billion in the fourth quarter; Comparable sales declined 4 percent. The closure of Yeezy Gap hurt growth in North America by about 2 percentage points. Softness in the children and babies categories was offset by strength in women.

Banana Republic’s net sales were $578 million in the fourth quarter, down 6 percent year-over-year. Fourth-quarter comparable sales declined 3 percent, driven by softness in outerwear and sweaters, as well as the holiday gift range.

“While dresses and suits propelled competitive growth during the quarter, the company recognizes that BR has benefited from the shift in consumer preferences toward occasion-related and work-related categories as people return to work and events post-COVID[-19]’ the company said in its statement.

At Athleta, fourth-quarter net sales of $436 million decreased 1 percent year-over-year and comparable sales decreased 5 percent due to continued product acceptance issues.

Last July, former Gap Inc. CEO and President Sonia Syngal was forced out of the company. Trouble continued in September when Gap split from Kanye West — and formed a lucrative partnership with the Gap Yeezy line — after both parties couldn’t see eye to eye and the entertainer subsequently made increasingly erratic statements. In the same month, Gap cut about 500 jobs, mostly in its corporate offices. In the third quarter of last year, Gap Inc. announced annual savings of $250 million. Over the past six months, the company has identified a total of $550 million in annual savings.

Officials said the company sees more opportunities to optimize its marketing spend and streamline its technology investments over the next few years. They have been working with outside consultants on this effort, “with the general intention of streamlining and simplifying the operating structure to increase profitability and cash flow over the long term,” the company said.

“We acted quickly in fiscal 2022 to manage the levers in our control and took action to drive immediate and long-term improvements across our business in what has been a challenging year. While we are better positioned as we enter fiscal 2023, we continue to take a prudent approach to planning and managing our business given the ongoing uncertain consumer and macro environment,” said Katrina O’Connell, executive vice president and chief financial officer. “We are confident that our continued actions to further optimize our operating model and cost structure are important steps in putting Gap Inc. back on a path to sustained, profitable growth and creating long-term value for our shareholders.”

The company estimates that first-quarter net sales could decline in the mid-single digits compared to last year’s net sales of $3.5 billion. The sale of Gap China to Baozun was completed on January 31st. Net sales for the first quarter of 2022 included sales of approximately $60 million for Gap China.

The company anticipates that fiscal 2023 net sales could decline in the low to mid-single digits compared to last year’s net sales of $15.6 billion. Fiscal 2022 net sales included sales of approximately $300 million for Gap China. Fiscal 2023 will have a 53rd week, which is expected to positively impact net sales by $150 million.

For the full year 2022, Gap Inc. reported revenue of $15.6 billion compared to $16.7 billion in revenue in 2021. There was a net loss of $202 million compared to a net loss of $256 million in 2021.