GAP Loses 211 Million In The First Half

The American textile chain Gap closed the first half of its fiscal year with a negative result of 211 million dollars (a similar figure in euros), in contrast to the net profit of 424 million dollars in the same period of the previous year, as announced by the multinational, which has withdrawn its annual forecasts and is looking for a new CEO after the departure of Sonya Singal a month ago.

The deterioration in the accounts of the textile firm reflects the 10.6% drop in sales in the semester, to 7,334 million dollars , after the poor reception of some of the chain’s proposals, through the Old brand. Navy , as well as the impact of higher costs due to inflation and inventory deterioration.

In this way, between the months of May and July, the second fiscal quarter for the company, Gap registered losses of 49 million dollars , compared to profits of 258 million dollars in the same period of 2021 , thus extending to four consecutive quarters the ‘Red numbers’.

Gap sales in the quarter totaled 3,857 million dollars, 8.4% less than a year earlier, with Old Navy revenues falling 12.5% ​​to 2,090 million dollars , while those of the Gap brand were down 9.5% to $881 million.

By contrast, the turnover of the Banana Republic brand rose by 8.9% year-on-year, to 539 million dollars, and those of Athleta by 0.9%, to 344 million dollars.

Likewise, Gap reported that its electronic sales fell by 6% year- on-year , to represent 34% of all billing, while sales in physical stores fell by 10%.

Between May and July, Gap’s gross margin on company sales fell to 34.5% from 43.3% in the second quarter of last year. Also, in the quarter, the firm assumed an adverse impact of 58 million dollars due to the deterioration of inventories.

In this sense, the chain warned that its final inventory increased by 37% year-on-year, which is equivalent to an excess of 3,100 million dollars.

Gap’s chief financial officer, Katrina O’Connell, explained during a conference call with analysts that the firm had an adverse impact of $58 million from the write-off of non-performing inventory , “mainly styles and sizes in Old Navy .”

“We think we had some printing and color errors in our summer assortment, which drove some of the weakness in the quarter,” the executive acknowledged. “Like so many others in our industry, we are managing elevated inventory levels as a result of changing demand trends and changing consumer preferences,” she noted.

At the end of the second fiscal quarter, Gap had 3,390 stores in 40 countries , of which 2,799 are operated directly by the company, which plans to open between 30 and 40 Athleta brand stores and between 20 and 30 Old Navy stores during the year while it expects to close about 50 Gap and Banana Republic stores in North America as part of its 350-store closure plan.

‘Crucial moment’
“This is a critical time,” said Bob Martin, Gap’s executive chairman and interim CEO, who said the company is taking steps to better optimize near-term profitability and cash flow by reducing operating costs and unproductive inventory.

In this sense, given the actions that the company has underway and in the midst of a transition to find a new CEO , together with an uncertain macro environment, the company announced that it has withdrawn its previous projections for fiscal year 2022.

Likewise, the financial director of Gap indicated that in the third quarter the multinational will implement a reduction in general investments , including a pause in hiring and vacancies, while it will review investments in marketing and technology in light of the current operating environment. , focusing spending on the most productive and highest performing opportunities.

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