Gap Inc. announced an unexpected first-quarter profit, and its shares increased 16 per cent in extended trading as a result. The apparel retailer highlighted supply chain cost reductions and restructuring initiatives as reasons for the increase.
After years of supply-chain hiccups, American businesses are beginning to feel some respite 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 levels decreased 27 per cent from a year earlier.
During the COVID-19 pandemic, Gap, like many other retailers, accelerated its ordering, only to be faced with mountains of unsold inventory as spending returned to normal.
The retailer has cut roughly 2,300 corporate employees in two rounds of layoffs since September, joining a group of major American corporations that are actively shrinking as high inflation erodes consumer purchasing power.
On a cumulative basis, employment losses are expected to result in estimated annualised savings of close to US $ 550 million, according to interim CEO Bob Martin on a post-earnings call.
In an effort to increase margins, executives mentioned lower expenditure on salaries and other operating costs as well as initiatives to shrink inventories.
By the end of the year, the business will have shut down roughly 350 underperforming Gap and Banana Republic locations, and O’Connell stated that fewer stores will be opened this year than anticipated.
