GAP withdraws its annual forecasts after another quarter of losses and falling sales

GAP does not see its future clearly.

The company is going through a very complicated financial year in which its own mistakes and an adverse macroeconomic environment have come together.

After another quarter of sharp drop in sales and losses, the company has decided to withdraw its annual forecasts, alleging that it is experiencing a moment of uncertainty due to the economic and transition situation while it replaces the CEO, Sonya Singal, who ceased her posted last month.

Despite being poor, the results are somewhat better than analysts expected and also better than those of the disastrous first quarter of the year.

In the second quarter of its fiscal year, which corresponds to the months of May, June and July, the group's sales fell by 8%, to 3,857 million dollars (a similar figure in euros), as explained by the company .

Gross margin fell further, 27% to $1.33 billion, representing just 34.5% of sales, compared to 43.3% in the same period last year.

Higher discounts to dispose of excess stock have been coupled with higher procurement costs and significantly more expensive airfreight.

Although the company has been able to contain operating costs, the operating result has been negative by 28 million dollars (compared to a profit of 409 million the previous year) and the net result is a loss of 49 million, compared to a profit of 258 million last year.

However, the company indicates that discounting two extraordinary effects, 30 million for the transfer of its Old Navy stores in Mexico and 49 million for a provision for inventory deterioration, it would have had a net profit of 30 million dollars, as explained to the analysts.

In the accumulated of the first six months, sales fall by 10.6%, to 7,334 million and losses are 211 million, compared to profits of 424 million a year ago.

Banana Republic resists

By chains, GAP's sales fell 10% and Old Navy's, 13%, while Banana Republic grew 9% in billing and Athleta, 1%.

The divergence, as in the case of Abercrombie & Fitch, shows that the macroeconomic environment matters, but that with the same environment, the results can be very different.

In Old Navy, the group's largest chain by sales, with 2,100 million in the quarter, they continue to weigh the errors in their size management with the laudable purpose of making their clothes more inclusive.

In many stores and designs, it was very easy to find very large or very small sizes, but intermediate sizes, the most demanded, were missing.

This upset the supply mechanisms, inventory management (forcing strong discounts) and the company's response capacity.

In addition, putting both the focus of its campaigns, both in physical and digital stores, on plus-size customers has alienated its regular customers from the brand.

In GAP, the company also cites some "imbalances" in its offer that it does not detail, to which is added the closure of stores and a poor evolution of the

with which the 10% decrease leaves sales at 881 million.

In both Old Navy and GAP, the company alludes to the impact of inflation on consumption habits, especially in the weeks when gasoline has been more expensive.

But with the same inflation, Banana Republic's sales have grown by 9%, to 539 million.

Athleta also grows, but only 1%, to 344 million, which is disappointing considering the aggressive opening policy.

Comparable sales, with the same stores, fall 8% in that banner.

The company blames this weakness on a change in preferences from more sportswear to clothes for going out or going to work, but also because they have not been successful with the assortment.

The drop in sales is concentrated in the United States, where the group has 84% ​​of its turnover.

The online store has resisted somewhat better than the physical ones (with falls of 6% and 10%, respectively) and accounts for 34% of revenue.

The group ends the quarter with 3,390 stores, only nine fewer than three months ago.

GAP's accounts leave two other worrying signs.

Despite the provision for impairment, inventories still grow by 37% and may force discounts that erode margins.

In parallel, in one year the cash position has gone from 2,407 to 735 million, which leaves a much less healthy balance for the future CEO, yet to be appointed.