Gap Shares Plummet Over Weaker-Than-Expected Earnings Report

Gap Shares Plummet Over Weaker-Than-Expected Earnings Report

Gap Inc. shares plummeted on Wednesday after the company’s fiscal third-quarter results fell short as Global supply chain disruption caused significant product delays in the quarter. 

Its stock was down about more than 16% in the extended trading post the announcement. 

The impact of the announcement could be observed on the dashboard of Quantale as the social engagement for the stock amongst the users of Twitter and Reddit rose more than 1100% combined with an increase of about 80% in the trading volume.

Gap stock opened its intraday at $18.48 per share, down $5.03 apiece from its previous day close of $23.51 per share.

Gap Shares Plummet Over Weaker-Than-Expected Earnings Report

In the three-month period ended Oct. 30, the company reported the earnings per share of 27 cents adjusted as against 50 cents expected by Wall Street. 

Revenue during the quarter came in at $3.94 billion versus $4.44 billion, below what the analyst expected. 

In the third quarter, the clothing retail company reported a net loss of $152 million, or 40 cents per share, compared to a net income of $95 million, or 25 cents a share, a year earlier.

Operating expenses stood at $1.51 billion or 38.2% of net sales on a percentage basis. Excluding a charge of $26 million related to transitioning the company’s European business to a partnership model, adjusted operating expenses concluded at $1.48 billion or 37.6% of net sales during the quarter.

“The third-quarter rate reflects an increased investment in marketing to support new initiatives, investments in technology to build out digital and supply chain capabilities, and higher incentive compensation and fulfilment expenses, partially offset by reductions in-store expenses,” said the company in a statement. 

At the end of the reporting quarter, Gap’s inventory was down 1% year-over-year and flat versus 2019. The company forecasts fourth-quarter ending inventory to be high single digits versus last year, although this outlook may change as the supply chain concerns are dependent on volatility.

Old Navy’s net sales grew 8% versus 2019. Comparable sales decreased 9% year-over-year and increased 6% versus 2019. Sales in the reporting quarter outpaced available inventory as the brand was impacted by supply chain delays, particularly within the women’s assortment. 

Following the launch of BODEQUALITY, Old Navy’s extended-size customer file grew twice since last quarter, with the addition of 15% of extended-size customers. These customers are heavily expanding across multiple categories, driving an increase in average transaction value.

Gap reported a fall of 10% in net sales versus 2019, with permanent store closures leading to a decline of an estimated 18% in net sales. Global comparable sales rose 7% year-over-year and increased 3% versus 2019.

Banana Republic reported a decline in net sales by 18% versus 2019, with permanent store closures resulting in an estimated 10% sales decline. Comparable sales rose 28% year-over-year and decreased 10% versus 2019. 

Athleta’s net sales were up 48% versus 2019. Comparable sales grew 2% year-over-year and 41% versus 2019. In pursuit of achieving $2 billion in sales, Athleta continued to invest in new touchpoints to increase awareness and drive customer engagement. 

The fashion retailer now estimates annual diluted profits per share of $0.45 to $0.60 in 2021, which includes an estimated $550 million to $650 million of lost sales from supply chain constraints on available inventory, as well as approximately $450 million in total air freight expense for the year. 

Gap now anticipates full-year revenue growth to be about twenty percent as against the previous year. 

“While there is still hard work ahead to navigate near-term challenges in the macro-environment, the team has made tremendous progress, adapting quickly while never taking their focus off of our long-term objectives,” said Katrina O’Connell, Executive Vice President and Chief Financial Officer, Gap Inc. “We have strong demand for our brands and our fleet rationalization and divestitures are progressing well and adding value. Our operating margin remains on track to hit 10% by 2023, in line with our plan, even as we navigate these near-term disruptions. While our mitigation efforts are driving significant transitory costs, we view these as investments in preserving market share and driving overall health and relevance for our brands.”