The Christmas season and the so-called "Santa Claus Rally" suggest that during this time, companies likely to earn above-average profits may be those in the retail industry. As it turns out, in the case of GAP, these predictions prove to be correct.
- GAP (GPS.US) beat Wall Street's expectations for quarterly revenue on Thursday, but gave a cautious outlook for the holiday season.
- The apparel retailer - which includes its namesake brand, Banana Republic and Athleta - predicts that its total net sales in the fourth quarter of 2022 could be down 1% to 5% y/y
- Gap's net income rose to $282 million, or 77 cents per share, a significant improvement from a net loss of $152 million, or 40 cents per share, in the same period a year ago. Revenues rose 2% to $4.04 billion from $3.94 billion in the same quarter in 2021.
- The company is looking for a new CEO after Sonia Syngal resigned from her position this summer following a high-profile split with Ye's Yeezy brand. Ye, formerly Kanye West, terminated his contract with Gap in September, citing breach of contract. Gap removed all Yeezy products from its stores in late October, after West made anti-Semitic remarks publicly. Gap announced Thursday that it had incurred $53 million in impairment charges related to Yeezy Gap.
Start investing today or test a free demoOpen real account TRY DEMO Download mobile app Download mobile app
- Comparable sales, which show revenue online and in stores open for at least 12 months, rose 1% from the year-ago period. Analysts had expected comparable sales to decline 3.2%, according to StreetAccount estimates. Online sales were up 5% from last year and accounted for 39% of total net sales.
Here's a closer look at each of the company's business segments:
- Gap's namesake brand, known for jeans and basics: comparable sales rose 4% globally and were flat in North America. The company said it did better in inventory, but had weaker sales in the children's and infant categories.
- Old Navy, known for its casual apparel for adults and children: comparable sales fell 1%. The brand saw weaker demand for children's and infant apparel and suffered from low-income consumers feeling stretched by inflation.
- Banana Republic, known as a destination for suits and dresses: comparable sales rose 10%. It is looking for a new direction after the pandemic disrupted the typical fashion routine - causing more people to work from home several days a week and dress more casually on the days they go to the office.
- Athleta, an activewear brand: comparable sales were flat as shoppers shifted to buying more occasion and work outfits. The company is capitalizing on a time when Americans were eager to stock up on stretchy leggings, workout tops and other comfortable loungewear when they spent time at home.
- So far this year, the company has closed a total of 29 Gap and Banana Republic stores in North America. It currently expects to close about 30 additional stores this year, as part of a goal to close 350 stores in North America by the end of fiscal 2023.
- However, the company is on track to open 30 Athleta stores and currently plans to open 10 Old Navy stores by the end of this fiscal year.
Major risk factor
The retailer is struggling with an excess of clothing, it is outdated by season, style or is the wrong size. Significant inventory has become a problem for many retailers, including Gap. A year ago, Gap struggled to meet demand as factories were temporarily closed due to Covid, and goods were stuck in crowded ports. The retailer went so far as to pay extra to ship clothes by air. But delays and backlogs meant that some seasonal goods still arrived too late. Gap's inventory rose 34% in the first quarter and 37% in the second quarter. Gap was forced to offer deep discounts, which reduced profits. By the end of the third quarter, the stock was up 12%,.
Old Navy faced a more specific inventory problem: the division decided to offer more clothing for plus-size women, but the move led to too many plus sizes left in stores and not enough popular sizes. Gap said Thursday that Old Navy made strides in the third quarter to improve the balance of sizes offered, which boosted sales.
GPS.US stock chart, D1 interval Source: xStation
The content of this report has been created by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, (KRS number 0000217580) and supervised by Polish Supervision Authority ( No. DDM-M-4021-57-1/2005). This material is a marketing communication within the meaning of Art. 24 (3) of Directive 2014/65/EU of the European Parliament and of the Council of 15 May 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II). Marketing communication is not an investment recommendation or information recommending or suggesting an investment strategy within the meaning of Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC and Commission Delegated Regulation (EU) 2016/958 of 9 March 2016 supplementing Regulation (EU) No 596/2014 of the European Parliament and of the Council with regard to regulatory technical standards for the technical arrangements for objective presentation of investment recommendations or other information recommending or suggesting an investment strategy and for disclosure of particular interests or indications of conflicts of interest or any other advice, including in the area of investment advisory, within the meaning of the Trading in Financial Instruments Act of 29 July 2005 (i.e. Journal of Laws 2019, item 875, as amended). The marketing communication is prepared with the highest diligence, objectivity, presents the facts known to the author on the date of preparation and is devoid of any evaluation elements. The marketing communication is prepared without considering the client’s needs, his individual financial situation and does not present any investment strategy in any way. The marketing communication does not constitute an offer of sale, offering, subscription, invitation to purchase, advertisement or promotion of any financial instruments. XTB S.A. is not liable for any client’s actions or omissions, in particular for the acquisition or disposal of financial instruments, undertaken on the basis of the information contained in this marketing communication. In the event that the marketing communication contains any information about any results regarding the financial instruments indicated therein, these do not constitute any guarantee or forecast regarding the future results.