Gap GPS Q1 2023 Earnings Report

The Gap logo is displayed at the Gap Store on April 25, 2023 in Los Angeles, California.

Mario Tama | Getty Images

Gap reported another quarter of net losses and declining sales across its four brands But the retailer insisted it was making progress — and managed to improve its profit margins dramatically.

Here’s how the clothing retailer fared in the fiscal first quarter compared to what Wall Street was expecting, based on a survey of analysts by Refinitiv:

• Earnings per share: 1 cent, adjusted, for an expected loss of 16 cents
• he won: $3.28 billion versus the expected $3.29 billion

For the three-month period ended April 29, the company posted a loss of $18 million, or 5 cents per share, compared to a loss of $162 million, or 44 cents per share, in the same period last year. On an adjusted basis, the company reported earnings of $3 million, or 1 percent per share, in the period.

Sales fell to $3.28 billion, down 6% from $3.48 billion a year earlier.

Shares of the company jumped more than 12% in after-hours trading.

Gap — whose namesake brands include Old Navy, Banana Republic and Athleta — has been without a CEO for nearly a year as it worked to restructure the business, better understand consumers, and return to profitability.

The company said work was well under way, but it had long acknowledged the need. She said that even though she knew what the solutions were, she was delayed or derailed for too long and too many times.

Last month, it told investors it would lay off about 1,800 employees, more than triple the 500 it announced in September, as part of a broad effort to cut costs and streamline operations.

Between this year and last, the company reduced 25% of its roles at headquarters, increasing the number of direct reports each manager had from 2 to 4 and cutting management layers from 12 to 8, the company said.

The company said the cuts remove layers of red tape and bureaucracy that will allow Gap to be smarter in its decision-making and focus on its creative efforts.

In March, she also announced a major leadership change. Athleta CEO Mary Beth Laughton has left the company and its chief growth officer role has been eliminated. And Gap announced that Chief Personnel Officer Sheila Peters will also be leaving, albeit at the end of the year.

Last quarter, comparable sales were down 3% and store sales were down 4% year-over-year.

Online sales, which account for 37% of total net sales, were also down 9% year-on-year, but the company said this was because sales trends were more in line with what has been historically normal after the Covid pandemic triggered an industry-wide jump. in e-commerce. The company said digital sales have risen “significantly” to pre-pandemic levels.

In the past year period, many retailers were still grappling with supply chain issues related to the pandemic, and this left Gap with excess inventory that they had a hard time selling because it was out of season or out of date.

Many, like Gap, relied on promotions to clear that inventory, particularly at Old Navy, but in its most recent quarter, it was able to maintain discounts — and take advantage of lower air freight costs that led to better margins for retailers across the industry.

On a year-over-year basis, gross margins increased 5.6 percentage points year-on-year to 37.1%. It also improved sequentially from last quarter with margins of 33.6%.

The company attributed the rise in margins to lower air freight charges and a slowdown in discounting, which was partially offset by continued inflationary costs.

Gap also continues to improve its inventory levels, which were down 27% in the first quarter at $2.3 billion compared to the year-ago period.

Across its brands, Gap has conducted research to better understand its customers so it can offer the products they want, regain market share and reverse stagnant sales.

Gap’s full-year outlook is largely unchanged from the forecast it provided in March. The company expects second quarter net sales to fall in the mid-to-high single-digit range.

For the full year, you still expect net sales to fall in a low to mid single digit range.

The outlook is affected in part by the sale of the company to Gap China. In the second quarter of fiscal 2022, it included $60 million in net sales from GapChina, and in fiscal 2022, it included $300 million in sales.

Fiscal year 2023 will also include its 53rd week, which is expected to boost sales by $150 million.

The company expects gross margin to continue to rise and capital expenditure to fall to $500 million to $525 million, compared to the previous range of $500 million to $550 million. This decline was driven by the decision to open about 5 fewer Old Navy and Athleta stores during the fiscal year.

Read the Full earnings release.