Gap slashes profit forecast, shares slide 13%

Gap Inc (NYSE:GPS)'s first-quarter results were dented by a steep decline in its Old Navy brand sales, as the apparel retailer cut its profit outlook for the year.

The retailer, which owns brands like Old Navy, Athleta brands and Banana Republic, posted a loss of US$162mln for the quarter ended April 30 compared with net income of US$166mln a year earlier amounting to 44c a share and way below analysts' estimates.

Gap expects to earn between 30-60c per share for the fiscal year 2022, down from a prior range of US$1.85-2.05 and again well below analysts' expectations of US$1.34 per share.

The company's revenue fell 13% year-on-year to US$3.5bn, compared to a consensus estimate of US$3.48bn.

Comparable sales were down 14% year-over-year, while online sales declined 17% compared to last year and represented 39% of total net sales.

"Slowed demand stemming from inflationary pressures impacting the lower-income consumer as well as continued inventory lateness to last year," was blamed for the drop by Gap in a statement.

Cost increases and Covid-19 lockdowns in China also hurt profits, though the San Francisco-based chain expects its performance to improve slightly in the second half of the year.

The bleak forecast and company's quarterly results “reflect industrywide headwinds as well as challenges at Old Navy that are impacting our near-term performance,” said Sonia Syngal, chief executive. 

Peer retailers American Eagle Outfitters Inc. (NYSE:AEO), Urban Outfitters, Inc. (NASDAQ:URBN) and Abercrombie & Fitch (NYSE:ANF) have outlined similarly gloomy prospects.

American Eagle cut its earnings outlook for the full year after it missed analysts' expectations in its first-quarter update, with its shares sliding 11% in extended New York trades. 

Abercrombie & Fitch (NYSE:ANF) fell 28% after it reported a loss of US$14.8mln in the three months ending April, while also slashing its sales forecast for the year.