Gap swings to loss as sales suffer from supply chain disruptions
San Francisco-based lifestyle retailer Gap Inc. announced a net loss of $152 million, or $0.40 per diluted share, for the third quarter, on Tuesday, as the company struggled with ongoing global supply chain issues. In the prior-year period, the group had achieved net income of $95 million, or $0.25 per share.
In the third quarter ended October 30, 2021, Gap’s net sales totaled $3.94 billion, slipping 1.3% from $3.99 billion in the prior-year period and 1.4% from $4.00 billion in Q3 2019, the last third quarter before the company felt the impact of the Covid-19 pandemic.
According to the retailer, its Old Navy brand was disproportionately affected by the supply chain disruptions, especially in its women’s assortment. This resulted in comparable sales at the brand falling 9% year over year, although they were up 6% when compared with the third quarter of 2019.
The company’s flagship Gap brand, on the other hand, posted a 7% year-over-year rise in comparable sales and a 3% increase when compared to Q3 2019, while Banana Republic saw its comps grow 28% compared to the third quarter of 2020 and fall 10% from two years ago. At Athleta, comparable sales rose 2% year over year and 41% compared to Q3 2019.
“While we entered the third quarter with growing momentum, acute supply chain headwinds affected our ability to fully meet strong customer demand,” commented Gap CEO Sonia Syngal in a release. “Still, we made an intentional investment in building enduring customer loyalty with accelerated use of air freight to serve them this holiday, choosing longterm growth opportunity over near-term impact to profitability.”
Year to date, Gap’s sales totaled $12.15 billion, reflecting a 22.8% increase from $9.38 billion in the same period in the previous year and a rise of 3.6% from the $11.71 billion reported by the company two years ago. Net income for the nine-month period was $272 million, or $0.71 per diluted share, compared to a loss of $899 million, or $2.41 per diluted share, last year, and income of $535 million, or $1.41 per diluted share, in the first nine months of 2019.
Looking forward, Gap has trimmed its full-year financial outlook in line with the supply chain difficulties it continues to face. The company now expects annual diluted earnings per share to be in the range of $0.45 to $0.60 in 2021, a figure which includes an estimated $550 million to $650 million in lost sales as a result of the disruptions, as well as around $450 million in air freight expenses incurred as the group attempts to navigate these issues.
Full-year net sales are now predicted to be up approximately 20% compared to 2020. Previously Gap had said that it expected an increase closer to 30%.
As of October, Gap has 3,459 global stores.
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