Gap announces big loss, declining sales and executive shakeup

Gap reported disappointing holiday-quarter results Thursday and announced a series of executive changes as the struggling retailer continues to search for a permanent CEO.

Shares of the company fell in off-hours trading.

Here’s how the company did in its fiscal fourth quarter compared with what Wall Street was anticipating, based on a survey of analysts by Refinitiv:

• Loss per share: 75 cents, vs. 46 cents expected
• Revenue: $4.24 billion vs. $4.36 billion expected

The company reported net losses of $273 million, or 75 cents a share, for the three months that ended Jan. 28, compared with a loss of $16 million, or 4 cents per share, a year earlier.

Gap reported sales of $4.24 billion, down 6% from $4.53 billion a year earlier. Comparable sales were down 5% year-over-year and store sales dropped 3%. Online sales, which represent 41% of total net sales, plummeted 10% compared to last year, the company said.

The apparel retailer — which includes its namesake brand, Old Navy, Banana Republic and Athleta — has had a rough year as it grappled with numerous net losses, bloated inventory levels and a search for a permanent CEO. During an earnings call with investors, Gap interim CEO Bob Martin said the board has narrowed its search and the next chief executive will be an external candidate.

As the company has struggled to get back to profitability, it announced it is eliminating its chief growth officer role, which has been held by Asheesh Saksena, effective Thursday. Athleta’s CEO, Mary Beth Laughton, also left the company Thursday.

“We believe Athleta has incredible potential, but it has suffered from product acceptance challenges
over the past several quarters,” Martin said in a release. “As we look to capitalize on this potential and remain competitive amidst a dynamic landscape, we believe now is the right time to bring in a new leader who can position Athleta for long-term success.”

Chief People Officer Sheila Peters is also leaving, albeit at the end of the year.

Gap issued a muted outlook for fiscal 2023. It plans to close 50 to 55 Gap and Banana Republic stores and open 30 to 35 Athleta and Old Navy stores. It also expects first quarter net sales to decrease in the mid-single digit range compared to the prior fiscal year and expects fiscal 2023 net sales to decrease in the low to mid-single digit range. It does, however, expect gross margins to expand in the first quarter and during the year.

The outlook was based on “the continued uncertain consumer and macro environment,” the company said.

This time last year, Gap struggled to get products on the shelves amid worldwide supply chain constraints and ended up flying in apparel to keep up with demand. Still, backlogs and delays kept inventories in transit so by the time it finally arrived, it was out of season or out of style, forcing the company to offer steep discounts, which has cut into profits.

In a bright spot for Gap on Thursday, though, the company reported that inventory declined 21% year-over-year.

Overall, net sales for the year dropped to $15.62 billion compared to $16.67 billion in the prior fiscal year. Net losses for the year came in at $202 million, compared to a net income of $256 million in the prior fiscal year.

Here’s how each brand fared in the quarter:

• Old Navy, which accounts for the majority of Gap’s revenue, posted $2.2 billion in sales, down 6% versus a year earlier. The retailer saw a pullback from lower-income consumers amid high inflation and softness in kids and baby categories, which was partially offset by strength in women’s wear. 

• Gap’s sales were down 9% year-over-year at $1.1 billion. Comparable sales in North America were down 5%. Similar to Old Navy, the brand saw softness in the kids and baby category, which was offset by strength in the women’s category. 

• Banana Republic posted $578 million in sales, a 6% drop compared to last year. The drop was driven by a pullback in outerwear and sweaters along with its holiday gifting assortment. Dresses and suiting drove comparable growth as consumers continue to venture back into the world and refresh their wardrobes for going out and heading to work. 

• Athleta, the athleisure unit that was a big pandemic winner, saw a 1% drop in sales to $436 million. Comparable sales were down 5% because of what the company called “continued product acceptance challenges” – or issues consumers have with the brand’s assortment.

Gap had originally forecast adjusted per share earnings of $1.85 to $2.05, with sales growing at a low single digit percentage rate for the fiscal year. It slashed that guidance and then withdrew it altogether halfway through the year amid plunging sales.

The company said it withdrew the outlook because of the uncertain macroeconomic environment and its ongoing efforts to make changes and find a new CEO.

In July, Sonia Syngal abruptly stepped down as chief executive. The company has yet to find a permanent replacement. Martin, the retailer’s executive chairman, has been serving as interim CEO in the meantime.

In the previous quarter, Gap sustained $53 million in impairment charges after Ye, the rapper formerly known as Kanye West, terminated his contract with the retailer citing apparent contract breaches and a lack of creative control. In late October, Gap removed all Yeezy products from its stores after Ye made anti-Semitic remarks.

Read the full earnings release here.