Gap (GPS) Q3 2021 earnings miss, cuts forecast

Gap (GPS) Q3 2021 earnings miss, cuts forecast

A Hole retailer in New York, August 2, 2020.

Scott Mlyn | CNBC

Hole Inc. shares tumbled Tuesday after the corporate slashed its full-year outlook, with fiscal third-quarter outcomes falling brief as Covid-related manufacturing facility closures led to vital product delays within the quarter.

Its inventory was not too long ago down about 16% in prolonged buying and selling on the information, having risen about 16% yr to this point.

“Whereas we entered the third quarter with rising momentum, acute provide chain headwinds affected our skill to totally meet robust buyer demand,” stated Chief Govt Sonia Syngal in a press launch.

Hole stated it invested in air freight to assist mitigate among the port congestion challenges over the vacations. However that additionally means added bills that may weigh on earnings within the close to time period.

This is how Hole did within the three-month interval ended Oct. 30 in contrast with what analysts had been anticipating, utilizing Refinitiv information:

  • Earnings per share: 27 cents adjusted vs. 50 cents anticipated
  • Income: $3.94 billion vs. $4.44 billion anticipated

Hole stated it swung to a web lack of $152 million, or 40 cents per share, from web earnings of $95 million, or 25 cents a share, a yr earlier.

Excluding objects, it earned 27 cents per share, wanting the 50 cents that analysts had been in search of, in line with Refinitiv.

Income fell barely to $3.94 billion from $3.99 billion a yr earlier. That missed expectations for $4.44 billion.

Provide chain points will persist

Chief Monetary Officer Katrina O’Connell stated that backlogs at U.S. ports deteriorated meaningfully into the again half of this yr, leading to as a lot as three steady weeks of unanticipated delays of Hole’s fall merchandise.

Though among the disruption is transitory, the challenges will probably persist into early subsequent yr, she stated.

Hole’s inventories had been down 1% on the finish of the third quarter in contrast with year-ago ranges, they usually had been flat versus 2019. Hole stated it expects fourth-quarter inventories to be up high-single digits yr over yr.

“The provision chain scenario continues to be unstable,” O’Connell stated. “Newly opened Vietnam factories are behind on vacation.”

Misplaced gross sales harm Previous Navy essentially the most

Different attire retailers together with Victoria’s Secret and Abercrombie & Fitch, which rely on Asia for production, have also said factory closures in Vietnam and clogged ports have meant their shelves haven’t been as stocked in recent weeks as they would have wanted.

Gap now expects full-year revenue to be up about 20%, which is less that its prior outlook of about a 30% increase. Analysts polled by Refinitiv had been looking for a 28.4% year-over-year gain.

Gap’s expectations for adjusted full-year earnings have been lowered to a range of $1.25 to $1.40 per share, from a prior range of $2.10 to $2.25 a share. Analysts had expected Gap to earn $2.20 per share, Refinitiv said.

The company said its revised outlook takes into account roughly $550 million to $650 million of lost sales from supply chain constraints and about $450 million in air freight costs for the year.

Old Navy was disproportionately impacted by supply chain delays, particularly its women’s assortment, Gap said. As a result, same-stores sales fell 9% year over year, but remained up 6% compared with 2019.

This is particularly bad news for the company considering Old Navy has been a major growth engine for Gap in recent quarters. It has made significant investments in Old Navy, including overhauling its plus-size apparel assortment. A slowdown at Old Navy therefore is a more sizable drag on the entire business.

At its namesake Gap brand, same-store sales rose 7% from a year earlier and were up 3% versus 2019. Syngal said ongoing store closures have helped the brand report healthier growth. Gap is also focused on trimming back merchandise in stores to keep the locations “lighter and brighter,” she said.

At Banana Republic, which focuses more on selling work wear for women, same-store sales rose 28% from year-ago levels and fell 10% on a two-year basis.

Same-store sales at Athleta, Gap’s rival to Lululemon and Nike for women, increased 2% from a year earlier and rallied 41% versus 2019.

One bright spot in Gap’s report was the apparel maker’s ability to raise its product prices. Gross margins were 42.1% in the third quarter, Gap’s highest rate for this period in 10 years. The company said its third-quarter discount rate was also the lowest in five years.

The company is also betting that a tie-up with rapper Kanye West’s Yeezy line will boost sales and lure in new customers. On an earnings call, Syngal said a Yeezy hoodie brought in the most sales in one day, online from a single item in Gap’s history.

Find the full earnings release from Gap here.

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