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Gap (GPS) Dips on Wider-Than-Expected Q1 Loss, Beats on Sales
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Shares of The Gap Inc. declined 13% in the after-market session on May 26, following the first-quarter fiscal 2022 results, wherein the company reported a wider-than-expected loss, while its top line surpassed the Zacks Consensus Estimate. Both metrics declined year over year.
Results were affected by industry-wide challenges as well as headwinds in its Old Navy brand, including issues related to the launch of BODEQUALITY. Also, lower-than-anticipated demand in key categories like active, fleece, and kids and baby hurt the quarterly results. However, management remains on track with the Power Plan, which is likely to lead to growth, margin expansion and good value for shareholders.
For the fiscal first quarter, the company’s loss of 44 cents per share was wider than the Zacks Consensus Estimate of a loss of 11 cents. Also, the metric compared unfavorably with earnings of 48 cents in first-quarter fiscal 2021.
Net sales declined 13% year over year to $3,477 million. However, the figure beat the Zacks Consensus Estimate of $3,432 million. Comparable sales (comps) slumped 14% on a year-over-year basis.
Digital sales decreased 17% year over year, accounting for 39% of total sales for the reported quarter. Store sales declined 10% year over year.
Old Navy: Net sales at Old Navy Global declined 19% year over year due to imbalances in size and assortment, ongoing inventory delays and headwinds related to product acceptance in some key categories. Comps also declined 22% year over year.
Gap Global: For first-quarter fiscal 2022, net sales declined 11% year over year, owing to weak demand stemming from inflationary pressures as well as COVID-related forced lockdowns and muted demand in China. Comps decreased 11% year over year across North America and globally.
Banana Republic: Net sales advanced 24% and comps were up 27%, driven by gains from the prior year’s relaunch of work-based categories.
Athleta: Net sales jumped 4% for the Athleta brand, while comps declined 7%. Segmental results gained from increased awareness along with strength in women’s active and wellness category.
Margins & Costs
Gross profit of $1,096 million reflected a 32.8% decrease from $1,630 million in the prior-year quarter. The gross margin of 31.5% contracted 930 basis points (bps) year over year due to a 760-bps decline in merchandise margins stemming from higher air freight. Also, huge discounts at Old Navy and rising commodity price increases were somewhat offset by fewer discounts at Banana Republic.
Operating loss was $197 million against income of $240 million in the year-ago quarter due to weak sales volumes, higher air freight costs, higher promotions and rising inflation.
Operating expenses declined 7% year over year to $1,293 due to dismal sales.
Other Financials
Gap ended the fiscal first quarter with cash and cash equivalents of $845 million, representing a significant decline from $2,066 million in the year-ago period. As of Apr 30, 2022, it had total stockholders’ equity of $2,454 million and long-term debt of $1,485 million.
In the quarter under review, the company used $362 million in cash from operating activities. Gap bought back 3.7 million shares worth $54 million and paid out a dividend of $56 million. GPS also approved a quarterly dividend of 15 cents per share in the quarter under review.
In the reported quarter, the company’s capital expenditure was $228 million. For fiscal 2022, capital expenditure is forecast to be $700 million for enhancing digital facilities, loyalty, supply-chain improvement, and investment in store growth for Old Navy and Athleta.
Store Update
As of Apr 30, 2022, Gap had 3,414 stores in more than 40 countries, out of which 2,825 were company-operated and 589 were franchise outlets.
For fiscal 2022, GPS plans to close 50 Gap and Banana Republic stores in North America as part of its 350 store-closure plan. It also expects to open 30-40 Old Navy and Athleta stores each.
Fiscal 2022 Guidance
Management slashed the fiscal 2022 view due to headwinds at the Old Navy brand, the current macro consumer environment, inflationary pressures and sluggishness in China. It expects adjusted earnings of 30-60 cents, down from the prior mentioned $1.85-$2.05. Sales are anticipated to decline in the low to mid-single-digit range, which compares unfavorably with earlier stated low-single-digit growth. The adjusted operating margin is likely to be 1.5-2.5%, down from the previously communicated 6-6.5%. The gross margin is envisioned to be 36.5-37.5%.
The company anticipates continued elevated air freight expenses for fiscal 2022, with $170 million incurred in the first quarter and $50 million to be incurred in the second quarter. GPS expects to return to normalized levels in the second half of fiscal 2022.
That said, management expects the overall performance to improve in the second half of fiscal 2022.
Image Source: Zacks Investment Research
In the past three months, shares of this Zacks Rank #5 (Strong Sell) company have declined 22.7% compared with the industry’s 28.1% fall.
Boot Barn, which provides western and work-related footwear, apparel and accessories, currently sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 25.2%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales and EPS suggests growth of 17% and 4.4%, respectively, from the year-ago period’s reported figures. BOOT has an expected EPS growth rate of 20% for three-five years.
Dillard’s operates as a departmental store chain featuring fashion apparel and home furnishings. It presently sports a Zacks Rank #1. DDS has a trailing four-quarter earnings surprise of 224.1%, on average.
The Zacks Consensus Estimate for Dillard’s current financial-year sales suggests growth of 6.1%, while the same for EPS indicates a decline of 33.9% from the year-ago period’s reported numbers. DDS has an expected EPS growth rate of 12.6% for three-five years.
Kroger, which provides an array of goods ranging from household essentials, groceries and electronics to toys and apparel for men, women and kids, currently carries a Zacks Rank #2. KR has a trailing four-quarter earnings surprise of 22.1%, on average.
The Zacks Consensus Estimate for Kroger’s current financial-year sales and EPS suggests growth of 3.2% and 4.1%, respectively, from the year-ago period’s reported figures. KR has an expected EPS growth rate of 9.9% for three-five years.
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Gap (GPS) Dips on Wider-Than-Expected Q1 Loss, Beats on Sales
Shares of The Gap Inc. declined 13% in the after-market session on May 26, following the first-quarter fiscal 2022 results, wherein the company reported a wider-than-expected loss, while its top line surpassed the Zacks Consensus Estimate. Both metrics declined year over year.
Results were affected by industry-wide challenges as well as headwinds in its Old Navy brand, including issues related to the launch of BODEQUALITY. Also, lower-than-anticipated demand in key categories like active, fleece, and kids and baby hurt the quarterly results. However, management remains on track with the Power Plan, which is likely to lead to growth, margin expansion and good value for shareholders.
For the fiscal first quarter, the company’s loss of 44 cents per share was wider than the Zacks Consensus Estimate of a loss of 11 cents. Also, the metric compared unfavorably with earnings of 48 cents in first-quarter fiscal 2021.
Net sales declined 13% year over year to $3,477 million. However, the figure beat the Zacks Consensus Estimate of $3,432 million. Comparable sales (comps) slumped 14% on a year-over-year basis.
Digital sales decreased 17% year over year, accounting for 39% of total sales for the reported quarter. Store sales declined 10% year over year.
The Gap, Inc. Price, Consensus and EPS Surprise
The Gap, Inc. price-consensus-eps-surprise-chart | The Gap, Inc. Quote
Brand-Wise Sales & Comps
Old Navy: Net sales at Old Navy Global declined 19% year over year due to imbalances in size and assortment, ongoing inventory delays and headwinds related to product acceptance in some key categories. Comps also declined 22% year over year.
Gap Global: For first-quarter fiscal 2022, net sales declined 11% year over year, owing to weak demand stemming from inflationary pressures as well as COVID-related forced lockdowns and muted demand in China. Comps decreased 11% year over year across North America and globally.
Banana Republic: Net sales advanced 24% and comps were up 27%, driven by gains from the prior year’s relaunch of work-based categories.
Athleta: Net sales jumped 4% for the Athleta brand, while comps declined 7%. Segmental results gained from increased awareness along with strength in women’s active and wellness category.
Margins & Costs
Gross profit of $1,096 million reflected a 32.8% decrease from $1,630 million in the prior-year quarter. The gross margin of 31.5% contracted 930 basis points (bps) year over year due to a 760-bps decline in merchandise margins stemming from higher air freight. Also, huge discounts at Old Navy and rising commodity price increases were somewhat offset by fewer discounts at Banana Republic.
Operating loss was $197 million against income of $240 million in the year-ago quarter due to weak sales volumes, higher air freight costs, higher promotions and rising inflation.
Operating expenses declined 7% year over year to $1,293 due to dismal sales.
Other Financials
Gap ended the fiscal first quarter with cash and cash equivalents of $845 million, representing a significant decline from $2,066 million in the year-ago period. As of Apr 30, 2022, it had total stockholders’ equity of $2,454 million and long-term debt of $1,485 million.
In the quarter under review, the company used $362 million in cash from operating activities. Gap bought back 3.7 million shares worth $54 million and paid out a dividend of $56 million. GPS also approved a quarterly dividend of 15 cents per share in the quarter under review.
In the reported quarter, the company’s capital expenditure was $228 million. For fiscal 2022, capital expenditure is forecast to be $700 million for enhancing digital facilities, loyalty, supply-chain improvement, and investment in store growth for Old Navy and Athleta.
Store Update
As of Apr 30, 2022, Gap had 3,414 stores in more than 40 countries, out of which 2,825 were company-operated and 589 were franchise outlets.
For fiscal 2022, GPS plans to close 50 Gap and Banana Republic stores in North America as part of its 350 store-closure plan. It also expects to open 30-40 Old Navy and Athleta stores each.
Fiscal 2022 Guidance
Management slashed the fiscal 2022 view due to headwinds at the Old Navy brand, the current macro consumer environment, inflationary pressures and sluggishness in China. It expects adjusted earnings of 30-60 cents, down from the prior mentioned $1.85-$2.05. Sales are anticipated to decline in the low to mid-single-digit range, which compares unfavorably with earlier stated low-single-digit growth. The adjusted operating margin is likely to be 1.5-2.5%, down from the previously communicated 6-6.5%. The gross margin is envisioned to be 36.5-37.5%.
The company anticipates continued elevated air freight expenses for fiscal 2022, with $170 million incurred in the first quarter and $50 million to be incurred in the second quarter. GPS expects to return to normalized levels in the second half of fiscal 2022.
That said, management expects the overall performance to improve in the second half of fiscal 2022.
Image Source: Zacks Investment Research
In the past three months, shares of this Zacks Rank #5 (Strong Sell) company have declined 22.7% compared with the industry’s 28.1% fall.
Stocks to Consider
Here are three better-ranked stocks to consider — Boot Barn Holdings (BOOT - Free Report) , Dillard’s (DDS - Free Report) and Kroger (KR - Free Report) .
Boot Barn, which provides western and work-related footwear, apparel and accessories, currently sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 25.2%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Boot Barn’s current financial-year sales and EPS suggests growth of 17% and 4.4%, respectively, from the year-ago period’s reported figures. BOOT has an expected EPS growth rate of 20% for three-five years.
Dillard’s operates as a departmental store chain featuring fashion apparel and home furnishings. It presently sports a Zacks Rank #1. DDS has a trailing four-quarter earnings surprise of 224.1%, on average.
The Zacks Consensus Estimate for Dillard’s current financial-year sales suggests growth of 6.1%, while the same for EPS indicates a decline of 33.9% from the year-ago period’s reported numbers. DDS has an expected EPS growth rate of 12.6% for three-five years.
Kroger, which provides an array of goods ranging from household essentials, groceries and electronics to toys and apparel for men, women and kids, currently carries a Zacks Rank #2. KR has a trailing four-quarter earnings surprise of 22.1%, on average.
The Zacks Consensus Estimate for Kroger’s current financial-year sales and EPS suggests growth of 3.2% and 4.1%, respectively, from the year-ago period’s reported figures. KR has an expected EPS growth rate of 9.9% for three-five years.