GAP Posts Surprise Profit, Stock Jumps 16%
Gap stock surged on Thursday after the company posted a surprise profit.
Gap Inc. posted a surprise profit in the first quarter on Thursday, and its shares increased by 16% in extended trading as a result of the apparel retailer’s supply chain cost reduction and restructuring initiatives.
After years of supply-chain hiccups, US corporations are beginning to get some relief from exorbitant freight and production expenses.
Due to reduced air freight costs and improved promotional activity, Gap’s quarterly merchandise margin climbed by 610 basis points on an adjusted basis.
As it strives to get rid of extra clothing it bought last year, the company has experienced decreasing inventory for two straight quarters.
According to chief financial officer Katrina O’Connell, inventory volumes decreased by 27% from a year earlier.
According to FactSet, the clothing retailer reported adjusted earnings of one cent per share for the quarter, beating average expectations for a loss of 16 cents per share.
Despite a 6% decrease from the prior quarter, revenue of $3.28 billion was in line with both company and market expectations.
Greater than expected, a 3% fall in same-store sales occurred.
In comparison to the $3.86 billion in net sales for the second quarter of 2017, Gap (ticker: GPS) anticipates net sales to decline by the mid- to high-single digit range.
Gap’s second-quarter sales are predicted to have decreased by about 5% from the same period last year. Net sales for the fiscal year 2023 might fall by a low- to mid-single-digit percentage.
As consumer demand increased during the Covid-19 outbreak, Gap, like many other retailers, accelerated its ordering. However, as spending returned to normal, Gap was faced with mountains of unsold goods.
Zachary Warring, an analyst with CFRA Research, stated that the quarter “was an okay one that was better than expected or feared.”
The retailer has cut roughly 2,300 corporate roles since September in two rounds of layoffs, joining a group of major US corporations that are actively shrinking as high inflation erodes consumer purchasing power.
In a post-earnings call, interim CEO Bob Martin stated that employment losses should together result in annualized savings of about $550 million.
Net sales for the company decreased 6% to $3.28 billion. Analyst expectations were at $3.29 billion.
Gap kept its yearly sales projection unchanged and anticipates a mid- to high-single-digit decline in second-quarter sales. Analysts anticipate a 4.95 percent fall in second-quarter revenue on average.