A larger-than-expected fourth-quarter loss was posted by Gap Inc. with forecast full-year sales below estimates. This is estimated to be due to inflation-weary consumers curbing discretionary spending leading to a slowdown in demand.
With interest rates in the US expected to rise to control inflation, consumers especially at the lower- to mid-income rung, have curbed their spending on non-essential items and have remained cautious.
Margins for the company were further hurt due to its efforts to offer promotions and steep discounts during the holiday quarter to remove excess inventory and increase demand.
As a result of people returning to social occasions preferring formal clothing, the company is seeing a slowdown in demand for casual and active wear. Sales at all of Gap’s four brands were down in the reported quarter, with Athleta falling 1 per cent.
While Gap’s biggest brand Old Navy struggles with outdated inventory, Banana Republic had some holiday product misses including over-assorted sweaters and outerwear, said Chief Finance Officer Katrina O’Connell.
“We expect the next few quarters to be tough on Gap with a weaker economic backdrop than the previous two years and new management,” CFRA Research analyst Zachary Warring said. Gap expects first-quarter and annual gross margin expansion but Warring added this margin improvement is “nothing to get excited about.”
The company expects fiscal 2023 net sales to decrease in the low- to mid-single digit range, compared with analysts’ expectations of 1.64 per cent rise, according to Refinitiv IBES data.
