Store sales declined 10 per cent compared to last year. The company ended the quarter with 3,390 store locations in over 40 countries, of which 2,799 were company operated. Reported gross margin was 34.5 per cent; adjusted gross margin, excluding a $58 million charge related to the impairment of unproductive inventory, was 36 per cent, deleveraging 730 basis points versus last year, the company said in a press release.
Gap Inc, one of the largest specialty apparel companies in the US, has reported a slump in its sales in its second quarter (Q2) of fiscal 2022 (FY22) ended July 30, 2022. Its net sales of $3.86 billion were down 8 per cent, while online sales declined 6 per cent compared to last year. The company’s comparable sales were down 10 per cent year-over-year.
On a reported basis, merchandise margins were down 850 basis points versus last year; adjusted for the inventory impairment, merchandise margins declined 700 basis points. Merchandise margins were negatively impacted by an estimated $50 million, or 130 basis points, of incremental transitory air freight costs, and the remaining decline of approximately 570 basis points was driven by higher discounting, primarily at Old Navy, and inflationary commodity price increases. The declines were partially offset by the benefit of lower discounting at Banana Republic.
Gap’s reported operating loss was $28 million in the quarter and reported operating margin was 0.7 per cent, while adjusted operating income was $65 million and adjusted operating margin of 1.7 per cent. Reported net loss of the company was $49 million and adjusted net income was $30 million, which excludes the inventory impairment and Old Navy Mexico charge.
“This is a pivotal moment in time. While we search for a new leader, I am taking on the role as Interim president and CEO of Gap Inc. with a deep commitment to the company’s success and impatience for change. Having navigated the global retail industry across brands and markets, I am not approaching this work from the sidelines,” said Bob Martin, executive chairman and interim CEO, Gap Inc. “We are taking actions to better optimise profitability and cash flow in the near term, reducing operating costs as well as impairing unproductive inventory. While our elevated inventory and pressured margins are current realities against unsettled market conditions, they do not define our ability to capitalize on Gap Inc.’s strengths to win.”
Gap ended the quarter with cash and cash equivalents of $708 million and its net cash from operating activities was negative $207 million. Ending inventory of $3.1 billion was up 37 per cent year-over-year. This includes nearly 10 percentage points of pack and hold inventory and 7 percentage points of in-transit.
Gap’s year-to-date capital expenditures were $406 million and share repurchases were $57 million, representing 5.7 million shares.
Old Navy’s net sales of $2.1 billion were down 13 per cent compared to last year and comparable sales were down 15 per cent. The Gap brand’s net sales of $881 million were down 10 per cent compared to last year. The brand was impacted by category mix imbalances during the quarter. Its global comparable sales were down 7 per cent and North American comparable sales were down 10 per cent.
Banana Republic’s net sales increased 9 per cent compared to last year and reached $539 million. Its comparable sales were up 8 per cent. As for Athleta, its net sales of $344 million were also up 1 per cent compared to last year. However, its comparable sales were down 8 per cent.
“We have four strong brands and leverage in the portfolio to deliver over the long-term, however, our recent execution challenges combined with the uncertain macro trends requires us to manage the levers in our control and take the actions necessary to drive improvement across our entire business,” said Katrina O’Connell, executive vice president and chief financial officer, Gap Inc. “In the near-term, we are taking actions to sequentially reduce inventory, rebalance our assortments to better meet changing consumer needs, aggressively manage and re-evaluate investments, and fortifying our balance sheet. While we have work to do, we believe these are the right initial steps to position Gap Inc. back on its path toward growth, margin expansion, and delivering value for our shareholders over the long term.”
Fibre2Fashion News Desk (KD)
