Gap narrows Q1 losses despite drop in sales

US fashion and lifestyle giant Gap reported a 6 percent drop in sales in the first quarter of the year, but its stock price jumped as its losses narrowed.

In the three months ended April 29, the retailer made sales of 3.28 billion dollars compared to the 3.48 billion dollars it reported a year earlier amid a backdrop of rising inflation and falling consumer demand.

The company said the results were impacted by “an estimated 1-point foreign exchange headwind and 2 percentage points of negative impact from the sale of Gap China”.

Sales of 1.6 billion dollars at Old Navy dropped 1 percent, with a strong performance in the womenswear category offset by “continued softness” in the activewear and kidswear categories, as well as “continued slower demand from the lower-income consumer”.

Meanwhile, sales of 692 million dollars at the company’s namesake label plunged 16 percent, though Gap noted that sales would be down only one percent if you were to exclude the negative impact from the sale of Gap China, the shutdown of Yeezy Gap, and foreign exchange headwinds.

Sales of 432 million dollars at Banana Republic were down 10 percent - compared to strong growth of 24 percent the prior year - while sales of 321 million dollars at Athleta were down 11 percent.

Despite the drop in revenue in the quarter, the net figure was still in line with the company's expectations for a mid-single digit decline in sales.

Gap reduces losses

Gap also managed to significantly narrow its net loss to 18 million dollars in the first quarter compared to a loss of 162 million dollars a year earlier.

Shares in the US retailer rose over 15 percent in after-hours trading.

Executive chair and interim CEO Bob Martin told investors: “We continue to take the necessary actions to drive critical change at Gap, ultimately getting us back on a path toward delivering consistent results long-term.

“While the macro and consumer environment remain uncertain, Q1 underscores our ability to deliver improvements to the business including share gains at Old Navy and Gap Brand, adjusted operating margin expansion, reduction in inventory, and strength in our balance sheet.”

Gap said its full-year sales outlook remains unchanged, expecting FY23 net sales to decrease in the low to mid-single digit range.

It also added that it expects second quarter and fiscal 2023 gross margin expansion compared to the prior year.