Gap, the iconic mall retailer, has recently reported another period of dropping sales across all its brands, highlighting concerns about uncertain consumer behavior. On Thursday, the company disclosed mixed results for the quarter and provided a less-than-impressive outlook for the current quarter.
In comparison to the previous fiscal year, Gap's sales decreased by 8%, from $3.86 billion to $3.55 billion. This downward trend has prompted the company to address its challenges and explore new leadership avenues.
Richard Dickson, a former executive at Mattel, assumed the role of Gap's CEO on Tuesday, taking on the responsibility of steering the company through these troubled waters. The company's persistent struggle with declining sales has prompted this leadership change, as Gap aims to revitalize its brands, including Old Navy, Banana Republic, and Athleta.
In the recent quarter, Gap outperformed Wall Street expectations for earnings per share but fell short of revenue forecasts. The company reported adjusted earnings per share of 34 cents, surpassing the anticipated 9 cents, while its revenue of $3.55 billion fell slightly below the expected $3.57 billion.
Despite this, Gap's net income for the quarter was $117 million, or 32 cents per share, compared to a loss of $49 million in the same period the previous year. This positive shift was attributed to lower air freight costs and reduced discounting.
One notable trend has been Gap's declining same-store sales, which dropped by 6% during the quarter, exceeding the anticipated 4.4% decrease projected by analysts. To counteract this, the company is focused on enhancing its gross margins, which saw a 3.1 percentage point increase to 37.6%, aided by lower air freight costs and a halt in discounting.
Looking forward, Gap anticipates a mid-single-digit decline in overall sales for the fiscal year, in line with analyst predictions. The change in leadership, with Richard Dickson taking the helm, is a clear indication of Gap's commitment to turning its fortunes around and finding new strategies to engage consumers.
The challenge for Gap lies in addressing the unique demands of its diverse brands, all of which have experienced decreasing sales quarter after quarter. Old Navy, a significant revenue source, faced a 6% sales decrease. Gap's eponymous banner experienced a 14% decline in sales, partially due to the closure of Yeezy Gap and the sale of Gap China.
Banana Republic encountered an 8% drop in comparable sales and an 11% decrease in overall sales, as it navigated changing demand patterns due to the post-pandemic work environment. Athleta, Gap's sports apparel brand, reported $341 million in revenue, with a 7% drop in comparable sales and a slight 1% decrease in revenue from the previous year.
Richard Dickson expressed optimism about Gap's future in light of these challenges, stating that the company's teams are working to streamline operations for growth-driving initiatives. He emphasized the need to redefine the brands' meanings to consumers, focusing on creativity, relevance, and leveraging the company's legacy to shape an exciting new future.
Prior to Dickson's appointment, Gap underwent significant restructuring efforts under interim CEO Bob Martin. These changes included reducing management layers, increasing the number of direct reports, and cutting 2,000 corporate jobs to streamline decision-making processes and focus on creative endeavors.
Gap's restructuring is expected to result in significant cost savings, with $300 million projected to be saved through the layoffs, the first $100 million of which will materialize in fiscal 2023. Despite the challenges posed by consecutive quarters of revenue decline, Gap's stock saw a positive boost in after-market trade, highlighting investors' confidence in the company's ability to adapt and recover.