Gap remains 'cautiously optimistic' about FY22 results

Second quarter net sales of 3.86 billion dollars, were down 8 percent at Gap Inc. compared to last year, while comparable sales were down 10 percent year-over-year.

While the company is making progress balancing its assortments, it remains cautiously optimistic in light of the consumer environment as it relates to its revenue in the second half of fiscal 2022.

“While we search for a new leader, I am taking on the role as interim president & 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, adding, “We are taking actions to better optimise profitability and cash flow in the near term, reducing operating costs as well as impairing unproductive inventory.”

Highlights of Gap’s financial results

Online sales declined 6 percent compared to last year and represented 34 percent of total net sales, while store sales declined 10 percent 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.The company’s reported gross margin was 34.5 percent; while adjusted gross margin was 36 percent, deleveraging 730 basis points versus last year.

The company's reported operating loss was 28 million dollars in the quarter; with reported operating margin of negative 0.7 percent. Adjusted operating income was 65 million dollars; with an adjusted operating margin of 1.7 percent.

The company’s reported net loss was 49 million dollars, while adjusted net income was 30 million dollars. Reported diluted loss per share was 13 cents and adjusted diluted earnings per share were 8 cents.

Review of financial results of Gap brand portfolio

Old Navy net sales of 2.1 billion dollars, were down 13 percent compared to last year, while comparable sales were down 15 percent.

Gap brand net sales of 881 million dollars, were down 10 percent compared to last year and global comparable sales were down 7 percent with North America comparable sales down 10 percent.

Net sales at Banana Republic of 539 million dollars, were up 9 percent compared to last year. The brand’s comparable sales were up 8 percent.

Athleta reported net sales of 344 million dollars, up 1 percent, while comparable sales were down 8 percent.

Gap remains cautiously optimistic about FY22 outlook

Coming off of peak inflation and the higher gas prices particularly impacting the lower-income consumer in June, the company has seen an improvement in sales trends in July and into August consistent with many other retailers.

The company expects to open about 30 to 40 Athleta stores and 20 to 30 Old Navy stores in fiscal year 2022. As part of its 350-store closure plan, the company continues to expect to close about 50 Gap and Banana Republic stores in North America during the year.

The company continues to expect a net benefit to GAAP earnings in the third quarter due to the sale of its UK distribution centre now that its European partnership model transition is complete.