Gap (GPS) reports earnings for the first quarter of 2022

A customer lifts a shopping bag at an Old Navy Inc. store in San Francisco.

David Paul Morris | Bloomberg | Getty Images

gap inc It cut its full-year earnings guide on Thursday as it reported a decline in first-quarter fiscal sales, which were dragged down by its Old Navy business.

An unbalanced mix of clothing sizes, ongoing inventory delays and an increase in price reduction promotions dented Old Navy’s performance during the quarter.

The low-income consumer, who is Old Navy’s target customer, is starting to feel overwhelmed by inflation, chief executive Sonia Syngal told CNBC. Shoppers also quickly switched from buying active clothes and fleece hoodies – the Old Navy’s “sweet spot” – to looking for party dresses and office dresses, she said in a telephone interview.

“We are dealing with very volatile consumer signals, whether it is last year due to Covid or this year’s post-Covid behavior,” said Syngal. “Over time, we will see customer preference for product types balanced.”

In late April, Gap had warned of obstacles within the Old Navy business when he announced the departure of the unit’s chief executive, Nancy Green. Meanwhile, Syngal helped lead the discounted apparel brand as the company searches for a Green successor.

For fiscal year 2022, Gap now expects to earn between 30 cents and 60 cents per share, on an adjusted basis. This is down from a previous range of 1.85 and $ 2.05. And well below analysts’ expectations for $ 1.34 per share, based on Refinitiv data.

Chief Financial Officer Katrina O’Connell said Gap has revised its outlook to take into account the “executive challenges” of the Old Navy, an uncertain macroeconomic environment and inflationary cost pressures. Also, a slowdown in China that is hurting Gap’s namesake brand.

The gap rose to a net loss in the three-month period ending April 30 of $ 162 million, or 44 cents per share, compared to net income of $ 166 million, or earnings of 43 cents per share, a year earlier. .

Revenue fell roughly 13% to $ 3.48 billion from $ 3.99 billion a year earlier. This came slightly above expectations of $ 3.46 billion.

Gap said its sales figure was hit by about 5 percentage points relative to the retailer passing incentive checks a year ago, as well as about 3 percentage points from disposals, store closings and transition of its European business to a partnership model.

Overall, same-store sales were down 14% from the previous year, more than the 12.2% drop analysts were looking for. Within that figure, Gap said its online sales were down 17% and in-store sales were down 10% from last year.

Here is a breakdown of the sales trend in the same store, by brand:

  • Gap: down 11% year on year
  • Old Navy: down 22% year-over-year
  • Banana Republic: up 27% year on year
  • Athlete: -7%

Gap executives also recognized him on Thursday a recent push to sell more plus size items at Old Navy it resulted in the retailer not carrying enough of its core size for customers and too many extended sizes not being bought.

“Our hindsight is that perhaps with the launch of inclusive sizing, we have moved away from real messaging, the core of what works for Old Navy, which is that valuable messaging,” CFO O’Connell told CNBC. in a phone call. “We’re really trying to get back to that.”

Total Gap inventories as of April 30th increased 34% over the previous year.

These levels will begin to decline later in the year, O’Connell said, but could remain high in the second quarter.

“Our inventory levels were significantly higher than we hoped for,” O’Connell said, adding that nearly half of the unwanted increase is due to extended transit times that he expects won’t improve anytime soon.

This story is developing. Please check back for updates.