The sale signs are displayed in the windows of a Gap store.
Scott Mill CNBC
Shares of Gap Inc. rose in after-hours trading on Thursday after the clothing retailer offered an optimistic forecast for its profits in 2022, despite rising inflation and logistical challenges.
The weak in the supply chain still remain a headache for the retailer, which also owns the Banana Republic and Old Navy brands. Gap CEO Sonia Singhal said in a press release that the retailer was facing short-term disruptions in its fourth quarter fiscal, which “muffled” the overall performance.
Holiday sales fell below pre-pandemic levels, and Gap sees its first-quarter revenue fall more than analysts expected on an annual basis. However, investors sent shares higher on Thursday night, as they made a long-term bet on the improvements of the clothing company and for more American consumers who want to update their wardrobe.
Gap’s comments on its first-quarter forecasts reflect shared sentiment among other clothing retailers, including American Eagle Outfitters, Abercrombie & Fitch, Urban Outfitters and Victoria’s Secret, which are facing winds from heaven. inflation to a protracted labor crisis to global unrest caused by Russia’s invasion of Ukraine.
Each of these companies spoke this week about recent problems with providing goods during the holiday season due to supply chain constraints. They also warned that pressure on shipping and rising prices would continue for at least the first half of the year. But then they expect to turn, as evidenced by Gap’s annual forecast.
In the first quarter, however, Gap’s revenue shrank by a medium to high single-digit rate from the previous year. Analysts were looking for a smaller decline of 3.8%.
Here’s how Gap did in its fourth quarter compared to what Wall Street expected, according to a study by analysts at Refinitiv:
- Loss of share: 2 cents adjusted to expected 14 cents
- Income: $ 4.53 billion against the expected $ 4.49 billion
Gap made a loss in the three-month period ended Jan. 29 of $ 16 million, or 4 cents a share, compared to a net profit of $ 234 million, or 61 cents a share, a year earlier.
Excluding fees related to strategic changes in European business, Gap lost 2 cents a share, less than the 14-cent loss analysts were looking for, according to Refinitiv.
Revenue rose about 2% to $ 4.53 billion from $ 4.42 billion a year earlier. This exceeds the forecast of 4.49 billion dollars. However, compared to 2019 levels, Gap said its sales fell 3%. This is partly due to the current and planned closure of stores.
Sales in the same store – a key indicator that tracks revenue in stores open for at least 12 months – rose 3% year on year, slightly less than the 3.7% increase analysts were looking for. On a two-year basis, sales in the same store also increased by 3%.
Gap said its gross profit fell 33.7 percent in the fourth quarter, below analysts’ estimates of 35.2 percent, according to StreetAccount. Gap said the figure was under pressure from higher air travel costs, which were partially offset by the company selling more hoods and denim at full prices.
Here is a breakdown of sales by brand:
- Gap said Old Navy had suffered in part due to supply chain complications, with sales at the same store equal to 2019.
- With the Gap banner of the same name, sales in the same store rose 3% on a two-year basis, fueled by double-digit growth in North America. The company said the brand is ready to grow in the coming months thanks to a recent relationship with Walmart for home goods, as well as its collaboration with rapper Kanye West.
- Banana Republic’s sales in the same store fell 2% from 2019 levels, in part due to the continued closure of stores, the company said.
- Sales at the same store in Athleta, Gap’s growing line of women’s athletic clothing, rose 42 percent over two years. The company said Athleta was still on track to reach $ 2 billion in annual sales by 2023.
The retailer said it expects stocks to rise by mid-20% by the end of the first quarter from a year ago because it booked commodity orders earlier than normal to try to offset -longer time frames for transportation.
For the full year, Gap expects to earn between $ 1.85 and $ 2.05 per share, on an adjusted basis, with sales growing at a low single-digit rate from 2021. Analysts forecast annual adjusted earnings per share of $ 1.86, with sales increasing by 1.6% compared to the previous year.
Gap shares have fallen about 45% in the last 12 months since the market closed on Thursday. The company has a market value of $ 5.3 billion.
Find the full Gap financial press release here.