Gap Inc. exceeded revenue projections on Thursday thanks to strong sales at its Banana Republic business, but pulled its annual forecasts as the apparel retailer battles with inventory buildup and lukewarm demand for outmoded Old Navy items. People are preferring suits, dresses, and skirts over casual wear as they go out for social events, to work, and travel more, with the demand for cheap luxury, which Banana Republicspecialises in, remaining strong. Gap reported higher sales trends in July and August, coinciding with a drop in petrol costs, pushing its shares up 6% in extended session.
Second-quarter net sales of $3.86 billion exceeded Wall Street projections of $3.82 billion, boosted by a 9% increase in Banana Republic sales, even as Gap struggled to shift out-of-date clothing at Old Navy. Retailers in the United States, including Kohl’s and Abercrombie & Fitch, have warned of hefty discounts to dump surplus inventory of casual attire, which was popular during the pandemic’s peak.
“Our elevated inventory and tight margins are present realities in an unstable market,” said Gap Executive Chairman Bob Martin. The company, which booked a $58 million inventory impairment charge, reported that supplies at the end of the second quarter were 37% higher than a year ago. The owner of the Athleta brand, which is undergoing a CEO transition after Sonia Syngal stepped down last month, announced plans to add up to 30 Old Navy stores this year, down from a previous estimate of up to 40 new stores. Gap forecasted fiscal 2022 adjusted earnings per share of 30 cents to 60 cents and revenue declines in the low- to mid-single digits in May.