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World NewsGap (GPS) Q3 2021 earnings miss, cuts forecast

Gap (GPS) Q3 2021 earnings miss, cuts forecast

A Gap retailer in New York, August 2, 2020.

Scott Mlyn | CNBC

Gap Inc. shares tumbled Tuesday after the corporate slashed its full-year outlook, with fiscal third-quarter outcomes falling brief as Covid-related manufacturing facility closures led to important product delays within the quarter.

Its inventory was just lately down about 16% in prolonged buying and selling on the information, having risen about 16% yr to this point.

“While we entered the third quarter with growing momentum, acute supply chain headwinds affected our ability to fully meet strong customer demand,” mentioned Chief Executive Sonia Syngal in a press launch.

Gap mentioned it invested in air freight to assist mitigate a number of the port congestion challenges over the vacations. But that additionally means added bills that can weigh on income within the close to time period.

Here’s how Gap did within the three-month interval ended Oct. 30 in contrast with what analysts have been anticipating, utilizing Refinitiv information:

  • Earnings per share: 27 cents adjusted vs. 50 cents anticipated
  • Revenue: $3.94 billion vs. $4.44 billion anticipated

Gap mentioned it swung to a web lack of $152 million, or 40 cents per share, from web revenue of $95 million, or 25 cents a share, a yr earlier.

Excluding gadgets, it earned 27 cents per share, in need of the 50 cents that analysts had been in search of, in accordance with Refinitiv.

Revenue fell barely to $3.94 billion from $3.99 billion a yr earlier. That missed expectations for $4.44 billion.

Supply chain points will persist

Chief Financial Officer Katrina O’Connell mentioned that backlogs at U.S. ports deteriorated meaningfully into the again half of this yr, leading to as a lot as three steady weeks of unanticipated delays of Gap’s fall merchandise.

Although a number of the disruption is transitory, the challenges will possible persist into early subsequent yr, she mentioned.

Gap’s inventories have been down 1% on the finish of the third quarter in contrast with year-ago ranges, they usually have been flat versus 2019. Gap mentioned it expects fourth-quarter inventories to be up high-single digits yr over yr.

“The supply chain situation continues to be volatile,” O’Connell mentioned. “Newly opened Vietnam factories are behind on holiday.”

Lost gross sales damage Old Navy essentially the most

Other attire retailers together with Victoria’s Secret and Abercrombie & Fitch, which rely on Asia for production, have also said factory closures in Vietnam and clogged ports have meant their shelves haven’t been as stocked in recent weeks as they would have wanted.

Gap now expects full-year revenue to be up about 20%, which is less that its prior outlook of about a 30% increase. Analysts polled by Refinitiv had been looking for a 28.4% year-over-year gain.

Gap’s expectations for adjusted full-year earnings have been lowered to a range of $1.25 to $1.40 per share, from a prior range of $2.10 to $2.25 a share. Analysts had expected Gap to earn $2.20 per share, Refinitiv said.

The company said its revised outlook takes into account roughly $550 million to $650 million of lost sales from supply chain constraints and about $450 million in air freight costs for the year.

Old Navy was disproportionately impacted by supply chain delays, particularly its women’s assortment, Gap said. As a result, same-stores sales fell 9% year over year, but remained up 6% compared with 2019.

This is particularly bad news for the company considering Old Navy has been a major growth engine for Gap in recent quarters. It has made significant investments in Old Navy, including overhauling its plus-size apparel assortment. A slowdown at Old Navy therefore is a more sizable drag on the entire business.

At its namesake Gap brand, same-store sales rose 7% from a year earlier and were up 3% versus 2019. Syngal said ongoing store closures have helped the brand report healthier growth. Gap is also focused on trimming back merchandise in stores to keep the locations “lighter and brighter,” she said.

At Banana Republic, which focuses more on selling work wear for women, same-store sales rose 28% from year-ago levels and fell 10% on a two-year basis.

Same-store sales at Athleta, Gap’s rival to Lululemon and Nike for women, increased 2% from a year earlier and rallied 41% versus 2019.

One bright spot in Gap’s report was the apparel maker’s ability to raise its product prices. Gross margins were 42.1% in the third quarter, Gap’s highest rate for this period in 10 years. The company said its third-quarter discount rate was also the lowest in five years.

The company is also betting that a tie-up with rapper Kanye West’s Yeezy line will boost sales and lure in new customers. On an earnings call, Syngal said a Yeezy hoodie brought in the most sales in one day, online from a single item in Gap’s history.

Find the full earnings release from Gap here.

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