The Impact of Old Navy’s Sales on Gap’s Business

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In the second quarter of 2018, Old Navy’s sales fell by 3% compared to the previous year, but sales of Gap Inc.’s other brands stayed stable or grew, according to company financial reports. Meanwhile, shares of Gap stock dropped more than 11% on July 19, 2018. Market analysts believe that investors may be concerned about the future of Old Navy if it continues to lose customers at this rate, which could hurt Gap’s business as a whole and impact its financial outlook for 2022 and beyond.

Image Source- Fashion Network

After swinging to a net loss in the second fiscal quarter and seeing its Old Navy business continue to struggle with the improper mix of sizes and designs, Gap Inc. retracted its financial projection for the year on Thursday.

The San Francisco-based firm, which is in the process of hiring a new CEO, withdrew its forecast for 2022 due to recent executional difficulties and unclear macroeconomic trends. Lower-income consumers, who make up a large portion of the target market for several of the company’s brands, are suffering from decades-high inflation.

In a news statement, Chief Financial Officer Katrina O’Connell stated that “in the near term, we are taking efforts to progressively decrease inventory, adjust our assortments to better match shifting customer preferences, proactively manage and reassess investments, and reinforcing our financial sheet.”

The company posted a net loss of $49 million, or 13 cents per share, for the three months that ended on July 30. It posted net profits of $258 million, or 67 cents per share, a year earlier.

The corporation made 8 cents per share after one-time expenses were taken out.

Image Source- Investopedia

In comparison to the same period last year, Gap’s sales dropped by 8% to $3.86 billion from $4.2 billion. That exceeded $3.82 billion in forecasts, according a Refinitiv poll. Gap’s stock had a 7% increase in extended trading.

Online sales, which made up 34% of overall sales, fell 6%.

Comparable sales, which monitor income at online and brick-and-mortar establishments open for at least a year, decreased 10% from the previous year. Old Navy saw a 15% drop, which the business attributed to inventory delays, “product acceptability challenges” in crucial categories, and a slowdown in demand from consumers with lower incomes.

Global comparable sales under the company’s eponymous Gap banner decreased 7%, in part as a result of existing and forthcoming store closures.

The business noted a shift in customer choice from athleisure to work-based categories as the reason for the 8% decline in comparable sales at Athleta. Comparable sales increased 8% at Banana Republic, which the store attributed to its investments in quality and changing consumer preferences.

In prepared remarks, Gap stated that it began to observe an improvement in sales patterns beginning in July and continuing into August, which coincided with a decline in gas costs. However, due to lingering uncertainty over consumer behaviour and incentives at rival stores, the business is not providing a prediction for its whole fiscal year.

Inventory at the conclusion of the most recent quarter was $3.1 billion, up 37% over the same period last year. According to Gap, some of this was purposefully stored to be sold at a later time and part of it is still in transit.

The firm said it had scaled back the number of brand-new Old Navy stores it intended to launch in the second half of the year as part of its cost-cutting measures.

Interim CEO and executive chair of Gap Inc. Bob Martin remarked, “Our increased inventory and compressed margins are present realities versus uncertain market conditions, but they do not define our ability to leverage on Gap Inc.’s assets to succeed.”

Sonia Syngal, the previous CEO of Gap, unexpectedly left her position in July. Additionally, the business just appointed a new divisional boss for Old Navy.

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