Gap (GPS) earnings Q3 2022

Holiday shoppers take part in early Black Friday shopping deals at the Gap store in Times Square in New York.

Brendan McDermid | Reuters

Gap on Thursday beat Wall Street’s quarterly revenue expectations, but gave a cautious outlook for the holiday season.

The apparel retailer — which includes its namesake brand, Banana Republic and Athleta — said it anticipates its overall net sales could be down mid-single digits year-over-year in the fourth quarter of fiscal 2022.

Chief Financial Officer Katrina O’Connell said while the company made progress in reducing its bloated inventory, it will “continue to take a prudent approach in light of the uncertain consumer and increasingly promotional environment as we look to the remainder of fiscal 2022.”

Shares of the company were up roughly 9% in extended trading Thursday.

Here’s how the retailer performed during the three-month period ended Oct. 29:

  • Earnings per share: 71 cents adjusted
  • Revenue: $4.04 billion vs. $3.8 billion expected, according to Refinitiv consensus estimates.

Wall Street was expecting Gap to break even on a per-share basis, but it wasn’t immediately clear if reported earnings per share were comparable to estimates.

Gap’s net income rose to $282 million, or 77 cents per share unadjusted, a dramatic improvement from a net loss of $152 million, or 40 cents per share, in the year-ago period. Revenue rose 2% to $4.04 billion from $3.94 billion during the same quarter in 2021.

Gap withdrew its full-year guidance in August, citing company-specific struggles along with inflation and a tougher economy.

The company is looking for a new CEO after Sonia Syngal departed this summer and playing out a high-profile breakup with Ye’s Yeezy brand. Ye, formerly Kanye West, terminated his contract with Gap in September citing what he called contract breaches and a lack of creative control. Gap removed all Yeezy products from its stores in late October, after West made public antisemitic remarks.

The retailer has also been coping with a glut of apparel that’s out of season, out of style or the wrong size, on top of high inflation and lower consumer sentiment.

Bloated inventory has become a problem for many retailers, including Gap. A year ago, Gap struggled to keep up with demand, as factories shut temporarily because of Covid and goods got stuck in congested ports. The retailer went as far as paying extra to fly in apparel by air freight. But delays and backlogs meant some seasonal merchandise still arrived too late.

Inventory has piled up in recent quarters as consumers seek dressier clothes instead of casualwear. Gap’s inventories were up 34% in the first quarter and 37% in the second quarter. Gap has turned to packing up and storing excess inventory in an effort to relieve stores that are clogged with the wrong stuff. But it’s also been forced to offer deep markdowns, cutting into profits.

Old Navy has faced a more specific inventory issue: The division decided to offer more plus-sized women’s apparel, but the move wound up leaving stores with too many extended sizes and not enough of popular sizes.

Share of Gap have fallen 27% so far this year. Shares closed on Thursday at $12.72, up more than 5% during the session.

This story is breaking. Please check back for updates.

Retailers' inventory struggles expected to hit earnings

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