Gap Inc’s reported net income for the three-month period was down $218m, compared to $282m a year earlier.
Looking at its individual brands, sales at Gap’s namesake store saw a decline of 15% compared to the previous year. Adjusting to the negative impact of the sale of Gap China and the shutdown of Yeezy Gap, net sales for Gap decreased by 6% versus 2022.
The retailer highlighted that women’s and baby products were the two categories that experienced the highest consumer engagement in the last quarter.
Banana Republic faced an 11% drop in net sales compared to last year and Athleta’s unit also experienced an 18% decline year-over-year.
The retailer’s low-cost Old Navy label reported a modest 1% decrease in sales and a 1% increase in its stores, driven by purchases in women’s, baby and kids’ clothing.
On an investor call in the wake of the results, Gap Inc president and CEO, Richard Dickson, who joined the retailer in July of this year, said the company remains mindful of the uncertain consumer environment and is taking the steps it needs to reposition and strengthen its portfolio of brands with “crisp identities and purpose.”
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Dickson’s strategy to reverse this downward trend includes turning Banana Republic into a quiet luxury brand by elevating its aesthetic and product offerings.
“We think Banana Republic has an opportunity to thrive in the quiet luxury space and represents a unique position in our portfolio,” He added.
Key results from the Gap’s Q3 earnings:
- Net sales of $3.8bn, down 7% compared to last year,
- Operating income was $250m,
- Net income was down to $218m from $282m in 2022.
According to the company in the last three months Gap Inc. has weathered a lot of disruption over the last several years, both external macro factors as well as execution missteps and strategically well-intended initiatives have impacted the company.
“Our supply chain is a pillar of strength at Gap Inc., where our scale gives us unique cost leverage, but we need to accelerate innovation,” said Dickson.
Dickson went on to say that Gap has made strategic investments in technology but it now needs to drive adoption across the organisation.
Reflecting on the results, Dickson singled out media and marketing as another example of where Gap can do better.
“Media and marketing is another area where we can up our game, leveraging the scale of our media spend to derive greater efficiency and effectiveness overall,” Dickson said. “And let me be clear, it’s not about spending more, it’s about getting more value from what we spend.”
Q4 sales expected to be flat-to-slightly negative
The company continues to anticipate that fiscal 2023 net sales, could be down in the mid-single digit range compared to last year’s net sales of $15.6bn.
Gap Inc said fourth-quarter net sales will remain flat to slightly negative compared to last year’s $4.2bn, reflecting the positive performance seen at Old Navy and Gap, which offset the ongoing efforts at Athleta and Banana Republic.
The company is planning adjusted operating expenses of approximately $1.4bn in the fourth quarter and approximately $5.15bn for fiscal 2023.
Dickson said that looking out to the full year the company has a “balanced” view of the holiday season.
Katrina O’Connell, executive vice president and chief financial officer at Gap Inc added: “Our third quarter results reflect ongoing progress, with gross margin expansion and operating margin improvement, resulting in strong free cash flow generation.
“As we look to the remainder of the year, we are reaffirming our full-year revenue outlook, which balances the progress we are seeing with a prudent view of the economic and consumer environment in which we are operating.”